The OrganizationLoblaw Companies, formed in 1921, is Canada's largest wholesale and retail food distributor, with operations across the country through company operated stores (corporate stores), franchised independent stores (franchised stores), associated stores and by servicing independent accounts.63% owned by the George Weston Group, Loblaw's goal is to provide high returns to its shareholders through a combination of share price appreciation and dividends. To this end, it follows a number of operating principles. It concentrates on food retailing with the objective of providing consumers with the best one-stop shopping for everyday household needs. It maintains a significant program of reinvestment in and expansion of its existing markets. It is highly selective in acquisitions and continues to invest in products and technology. This makes Loblaw the #1 food retailer in all of their markets with about 26% of the national grocery market .Loblaw has developed a highly successful line of controlled label products that are sold in its corporate stores, franchised and associated stores and are available to its independent customers, which includes the line of President's Choice products. In addition, whenever practical, remodelled or expanded stores now include new departments such as photo labs, pharmacies, dry cleaners, video merchandise, greeting cards, floral, apparel, prepared foods and, most recently, financial products and services offered through the President's Choice Financial Services.Loblaw is one of the largest private employers in Canada with over 114,000 employees throughout the business. Loblaw believes providing secure employment can best be met in a stable, low cost operating environment in which everyone associated with the company accepts the need to continuously improve their ability to serve the customers.How has the Organization been Successful?The numerous factors contributing to Loblaw's success will be examined. The mission at Loblaw is, "To build a business that will never know completion, but will advance to continually meet advancing conditions ." Main reasons for the success of so many of Loblaw's ventures could be attributed to their continuity of leadership. For 25 years, Dick Currie, the company's President, has set clear, long-term objectives that have encouraged individual entrepreneurship and delivered years of tremendous growth.Loblaw is also noted for being ahead of the game in terms of leveraging technology and innovation, such as the launch of President's Choice Financial products. Because it created a brand that was perceived by their customers to link high quality with lower prices, Loblaw has been able to apply it to financial services with remarkable success. President's Choice Financial is still in start-up mode, but already has a substantial customer base.It is evident that Loblaw has been putting in a large effort to integrate technology into their everyday business activities. It is an expensive challenge for the company, but a strong, forward-looking company like Loblaw should be looking for such changes since technology integration brings enormous productivity and selling opportunities.Innovation at LoblawTen years ago, nobody outside Canada had heard of President's Choice. Now, the Loblaw label has been franchised to retailers operating more than 1,500 stores in 46 states in the U.S . And even though it no longer is alone in the field of top-quality brands in the U.S., other retailers and wholesalers bringing out similar products of upscale lines will probably never attain the position that President's Choice has in Loblaw's Canadian stores.Loblaw has always been a leader in the food-retailing scene. They were the first to pursue selling national brand products at or below cost while making money on a large assortment of its own labels. What they had to do was control the mix of every category's total sales in high margin retailer-controlled brands to allow them to sell the ever decreasing national brand portion of the category at or below cost. Loblaw first tested the concept in 1993 in some categories at its 43 No Frills limited assortment stores in Toronto. It soon seeped into Loblaw supermarkets next year because the practice worked so well.To survive in the 1990s, Loblaw was quick to realise that retailers had to differentiate themselves with unique products available only at their stores, develop the commitment and marketing skills critical to sell these products; and improve costs, information and organization.Information Technology and Knowledge ManagementThrough the changes that Loblaw has gone through as an organization, the emergence of its success is due to the fact that it realizes it is not just about selling another can of beans. What it focuses on is the understanding that the value of the organization is directly linked to the lifetime value of its customer base. To build business, the company needs to do more than entice new customers, an achievement which, in the grocery business, adds considerable merchandising expenses in the form of "loss leaders" to attract people into the store.With the realization that it can more effectively build business by holding on longer to the customers it already has and getting those customers to spend more money in the store, Loblaw had their industrial engineers devise systems to try to change customer behaviour by getting customers fresher product, faster, and at lower cost. The engineers began a system-wide change of the entire supply chain to be process-oriented instead of function-oriented . Equally important was always that employees see their roles as part of the end result, from the stocker in a local store to the accounts payable clerk in corporate headquarters whose mishandling of an invoice could cause a warehouse to run short of inventory, which then could cause a store to be out of stock on an item and force the customer to seek it from a competitor.The key here is that through Loblaw's training, it had to create a motivating reason for employees to contribute significantly to Loblaw. Salary, benefits, and incentives are, of course, only part of the equation. A compelling reason for people to give their all for a company can only be brought about through a values-based organization, which means a company would need to spend a lot of time discovering those values within the organization.Loblaw's StrategiesLoblaw's management has pursued a multiple store format strategy that makes it possible to stock a wide variety of products to satisfy customer demands without sacrificing operating efficiency; this has been effective. These formats include the No Frills stores designed to offer the lowest possible prices, and also the Superstores format that offer everything from computers to underwear.For Loblaw to reach such commanding success, it must consistently do more than just win in its industry. It needs to significantly outperform the retail pack and win the hearts and wallets of customers by focussing all of its attention on being the best in its niche. This establishes a clear position in its customers' minds for Loblaw to then deliver on its promise.To be successful in Loblaw's industry, it is important to execute better than competitors when it comes to people, costs and technology, since return on investment and market share are not the only drivers of financial performance. To stand apart, it must invest in its people, and control costs and manage technology far better than its competitors.It is evident that Loblaw has made itself into a company that leads changes by continuous reinvention. Loblaw knows that past dominance is never a guarantee for the future, so it welcomes change since that is the only certainty. Loblaw sees where the organization is going, when to bring new players on board and how to stay focused while responding to change. Sometimes this means reinventing themselves, and Loblaw has undertaken major changes. Its success in the '90s is well known, so much so, that it is easy to forget it was a poor performer just 20 years earlier.In 1976, Loblaw was losing $50 million on annual sales of $3.5 billion . That same year, Currie took over as president and led the changes that would make the organization a phenomenal success. Currie did more than just stop a downhill train crash; he changed its direction altogether. Within one year, he eliminated the loss that he had inherited, and by 1984, the company had almost doubled sales, and was well on its way to the No. 1 position in the grocery sector . Currie led that change by focussing on stopping the losses and generating the cash to develop new retail formats and put investments in remodelling stores. Loblaw centralized finance, real estate and procurement to gain control over key operating decisions. Doing all this, years before its Canadian competitors, made Loblaws' margins the highest in the industry.Although the President's Choice line was not introduced until 1985, Loblaw's store brand emphasis has been a constant part of its strategy since 1978 when the No Name generic products were launched . Loblaw's President's Choice line now consists of well over than 1,000 products, which includes all supermarket categories, plus health and beauty care and general merchandise.It all comes down to four main things: strategy, focus, culture and dedication. For Loblaw, it tries to make its products superior, its stores superior, and its people and its training superior. The organization allows its customers to see where it is going. The retail business is a competitive business and it is difficult to build a sustainable advantage. The only way to succeed is to constantly ask, "How can I get better?"Management Effectiveness at LoblawIn looking at corporate management and leadership styles, it is evident that Loblaw has had solid management in Dick Currie for the past dew decades. In 1976, when Galen Weston became chairman of Loblaw Companies Ltd., Currie took over as president. In 2001, Currie won Canada's Outstanding CEO of the Year. Under his leadership, Loblaw has developed from near insolvency to international recognition.Before CurriePrior to Currie, the Loblaw business consisted of dispirited management and crumbling assets . The business had been stretched beyond its ability to fund its needs. Worse, Loblaw could not even get out of food distribution altogether (to try to save itself by just reverting to manufacturing) because competitors may prove to be averse to buying Loblaw's manufactured products? The competitors may think, since we drove them out of the food distribution business, we could also drive them out of food processing business.So, the first thing Currie set out to complete was to match the size of the business to its ability to fund itself and to grow, rebuild the asset base, and thereby rebuild morale. What Currie did was downsize and resize the business to have it fit. This likely took a long time. When Currie became President, Loblaw had essentially no equity supporting the business. The first stage in the business was really about survival and the generation of cash.After CurrieThe most noticeable feature of Currie's business philosophy, and one that has served as the foundation for Loblaw's success, is to maintain flexibility. Through its real estate, labour, and distribution strategies, Loblaw has maintained a flexible position that has allowed it to continually adapt to changing markets.In the industry that Loblaw is in, a CEO is required to constantly be walking a fine line between leadership and management in an environment that requires a significant amount of flexibility. At the same time, a successful CEO cannot be an autocrat in the corporate ivory tower. The speed with which decisions have to be made is important, and this requires a flexible CEO. When things are stable and mature and the industry is at a standstill, then all the CEO needs to do is manage. But the more changes that take place in the external environment, such as is the case in the industry in which Loblaw finds itself, the greater the need for leadershipA study found that only three percent of Loblaw's customers perceived it as price competitive . Currie invested in information technology and repositioned the company in its consumers' minds. He lowered prices, improved selection, and introduced innovative private label products. No Name value products and the President's Choice prestige line dramatically changed the organizations market position.The results under Currie's leadership provide a perfect model for the power of managing change. Loblaw continues to innovate with new stores and new products like President's Choice banking. Deservedly, Currie was chosen as the 1997 Retailer of the Year by the Retail Council of Canada.Diversity at LoblawWith the emergence of worldwide free trade, if Loblaw is to achieve sustainable commercial advantage domestically and globally, it must understand how diversity, as one of our intellectual assets, can contribute to long-term organizational health and survival. Managing diversity can contribute to the organization's tangible long-term wealth through the impacts diversity has on the bottom line: 1) making it a supplier of goods and services to others who recognize and value diversity (globally and domestically); 2) providing opportunities to capture emerging non-traditional markets; 3) creating value-added customer-client relationships; 4) establishing a business environment that encourages flexibility and innovation; 5) bringing the synergy of differing perspectives to problem solving, new product development, and new market opportunities; and 6) attracting and retaining the "brightest and the best" workforce and attracting capital investment and shareholders.However, Loblaw should also be responsive about the fact that diversity now is not just about race and gender, but has come to encompass all differences and dissimilarities in people. Diversity is inherent in customers, competitors and all stakeholders in the external business environment and employees inside the organization. Valuing diversity should focus on the importance of recognizing and acknowledging individual differences, and accommodating differing needs and expectations. Those differences and needs are based on any characteristic that helps shape a person's attitudes, behaviours, and perspective - such as age, ethno-cultural background, socio-economic status, or education - and acknowledges those differences with both internal and external stakeholders.Effective diversity management needs change in management attitudes and practices. Training, controlling, overseeing, and governing all define the word "manage" and all have application in practice. In a business culture that is increasingly diverse, global, fragmented, consumer-driven and information-intensive, management practice must change. For employees to maximize innovation and creativity, management must give way to decentralized leadership. This is not the cliché notion of "empowering employees." Opportunities for employees to innovate make a competitive difference. Logically, homogeneous work teams would tend to be less innovative than those representing diverse viewpoints and backgrounds.At Loblaw, it is apparent that changing demographics have influenced hiring qualifications and occupational requirements. In one store location there had been an influx of Mandarin and Cantonese-speaking customers who were unable to communicate with the store pharmacist . Recognizing lost opportunity, the store advertised another pharmacist position, including a requirement that the applicants speak both Mandarin and Cantonese. After the position was filled, both prescription rate and pharmacy revenues increased significantly. For Loblaw, entrenching diversity into its business strategies and using such inclusive strategies - accommodating diversity and the resulting variations in customer needs - should pay off in increasingly higher revenues.Loblaw's Corporate Governance and ControlWhen it comes to policy making, it is obvious that the George Weston Group have completely control over management at Loblaw. Despite the fact that an independent Board of Directors is always preferred in a company, Loblaw is an example of a company that has been successful even though it has a controlled Board. Granted, when there are significant shareholders that also manage, such is the case for Loblaw, it is very difficult for outside directors to exert the degree of independence and oversight that they otherwise could in a widely held company. But while it is difficult for directors on controlled boards to adequately oversee and advise senior management, the presence of a senior manager on the board does not necessarily spell disaster for an organization. Loblaw can still ensure individuals are still able to be effective board members on a controlled board as advisors or mentors (since they lack the power to fire management). The Weston family runs Loblaw, but while the Westons have an undeniable influence on their boards, they do have some independent directors to watch over the business.The External Environment Surrounding LoblawThe 1990s ushered in the environmental movement , since which environmental concerns have attained substantial momentum and is continuing to alter consumers' basic habits. In response, Loblaw incorporated environmentally friendly practices into its business plans, including consumer education on various environmental issues, corporate involvement in ecological programs, and lobbying for effective environmental public policy. Loblaw has also demonstrated its concern for the environment by pressuring its suppliers to develop products less handful to the environment; its style in doing so is certainly not as highhanded as Levi's measures had been, so Loblaw has not met any backlash from the suppliers they deal with. As consumers become increasingly committed to environmental action, Loblaw can use to its advantage the fact that "green products" will gain a competitive edge in the marketplace.Loblaw can say that it is a company that has committed human and financial resources to carry out sustainable development. Within the organization, it has tried to dispel the notion that environmental initiatives negatively impact the bottom line and that commitment to environmentally sound practice is a necessary evil of doing business - a belief held by many companies. Alternatively, it seems that they have adopted the fact that corporate commitment in sustainable development is a greater profit generator.Coming to terms with sustainable development is key to long-term business success since sustainable development is an inevitability. The sooner an organization reaches that conclusion, the greater its advantage in the future. Commitment to sustainable development is a good predictor that the senior management of Loblaw is thinking ahead of the curve. Such pro-active planning and long-term decision making is evidence that it could extend beyond the issue of sustainable development, to matters of employee compensation, production line efficiency, new market opportunities, financing, etc. Sustainable development associates with a number of sound management practices, demonstrating that companies that "do the right thing" can satisfy the requirements of consumers and investors interested in performance and a commitment to environmental, economic and social ethics. Loblaw has been quick to realise that the days have passed when "the environment" simply meant the cost of doing business.Forecasting ChangeLoblaw has made its blunders before in anticipating environmental shifts. In the 1970's, when Loblaw was in the midst of expansion in the supermarket industry, one of its acquisitions was attaining a controlling stake in The National Tea Company in Chicago. In their mad pursuit of increased sales volume, Loblaw continued acquiring other supermarket companies in cities across the country. In this process, they missed the dramatic demographic shift from urban centres to the suburbs that was taking place in its Midwest home market. While the competition foresaw that building bigger stores near these rapidly growing residential neighbourhoods was the way to go, Loblaw increased National Tea's position in smaller downtown locations. As operating costs increased and urban decay became more and more widespread, it proved next to impossible for Loblaw to make money.National Tea continued to slide and, in the end, their strategic blunder proved fatal. Even though Currie, upon his appointment as President, was reluctant to give up the foothold in the U.S. and set out to fix it by cutting costs and taking measures in repositioning, the competitors' head start was too great, and Loblaw was eventually forced to completely withdraw from the U.S. market.Now, the changes that Loblaw should look out for are mainly in its competitors. Canadian grocery retailers are positioning themselves to become stronger, smarter and more influential players . In the past, a combination of physical geography and opposing sense of regionalism has affected the development of Canada's supermarket industry. The process of competition has also been protected by Canadian regulators, who like competitive chaos in the marketplace, so they have always tried to prevent standardization and dominance.The battle for supermarket dollars currently seems to be waged among mostly Canadian owned and operated companies. But as national and regional players fight for increased market position, outsiders are also getting into the war, led by U.S.'s Wal-Mart. This could mean a cutthroat confrontation.IcebergsCompany's share prices have been going down in this industry since it has become an increasingly saturated market, much different from the conditions when Loblaw first came out with the novel ideas in its structure and in what it offered. The following are some current trends that Loblaw should look out for in the Canadian supermarket environment:oThe easing of large-scale mergers. The last major round of food retail consolidation occurred in late 1998 when Loblaw purchased Provigo. Now, Loblaw should be just focussing on increasing their operating margins.oNational and regional chains will have a wider range of store innovations, including more focus on non-food products and services, and increased attention on private labels. There should continue to be more investments in new technologies, especially for warehouse management, supply chain applications, front-end and electronic retailing.oWal-Mart will become a much more aggressive player. The Canadian food retailing industry has traditionally been considered more competitive than in the United States due to its higher concentration and the strength and national scope of its major players. High concentration means less room for additional merger activity among the major chains like Loblaw and lower potential acquisition-related synergy savings. But even so, considering Canada's relatively low level of industry profitability, there is room for operating improvements. There is also room for smaller fill-in acquisitions by major chains, and for consolidation among the regional chains.What Loblaw should focus on now is how it will fare up against the biggest competitor of all, Wal-Mart. The U.S. company would be introducing full grocery departments to its Canadian stores just like it has done with success in the U.S. When Wal-Mart does start selling pasta and vegetables, its economies of scale will dwarf anything that Canadian chains can offer. In this battle of the food giants, size will be a given.Loblaw should be careful with regards to how it expects to compete with Wal-Mart. If it is to be based on price, in the immediate time period customers will likely respond to the new prices in relation to Wal-Mart's expected price, likely resulting in higher unit sales and total profits for Loblaw. But by the end of the immediate period, if Wal-Mart decides to cut its price too, customers will have a new price comparison to make, which would surely result in lower unit sales and profits for Loblaw. When it comes to competing on prices, Wal-Mart's economies of scale are hard to beat.With competitors like Wal-Mart and Costco entering the ring, to prevent price wars, Loblaw could try cooperation as opposed to hostility. New concepts of competition from our textbook like "cooptation" and the growth of elaborate alliance networks for firms would decrease a juvenile "us against them" dynamic. A publicly traded company like Loblaw is trying to maximize profits. This could mean working to defeat competitors in some situations but cooperating with competitors in others.The key thing in handling competitors is to not get surprised. The outlook for the grocery store business is that it seems it will get both bigger and smaller in the future. We could see ever-larger stores offering more and more products like Wal-Mart, and we could also see the business moving towards No Frills stores. So this is something the CEO should look out for.It comes down to who can do the best job at reading shoppers' minds. Loblaw currently does a good job at concentrating its effort on making its stores a convenient one-stop shopping destination and ensuring that its attention to detail makes it the equal of its bigger competitors.As stated previously, only three percent of Loblaw's customers perceived it as price competitive. So, rather than engage the competition directly in price wars to gain market share, Loblaw could focus its attention on profitability and store image. If Loblaw continues to be committed to creating product and service offerings that fulfill the changing lifestyles and daily needs of consumers, Wal-Mart's low prices would play less of a role in consumers' minds. As the consumer needs evolve and trends change, the company must adapt their offerings to stay in touch with the ways their customers live. It must continue to expand its products, services and stores to meet new demands and to anticipate tomorrow's needs. By becoming an all-in-one destination - the place for customers to do their banking, pick up dry cleaning, fill their prescriptions, as well as buy their groceries - and by continually introducing innovative products and convenient services, Loblaw would ensure that customers think of its name first - and not Wal-Mart's low prices - for their household needs.
