Loblaw Companies Limited
The grocery industry has a relatively high market commonality; a lot of grocery stores are somewhat related in terms of technologies used, labor force and the products or services offered in the stores. Differentiation with other competitors is key for survival in this highly competitive industry. External Environment Demographic Segment Canada’s demographic trend is very unique due to the increasing number of immigrants and its aging population.
Ethnics come to Canada mainly from China, South Asia, Middle East, Central and South America, and Caribbean.The increase in immigrants create a demand for the grocery industry to carry a broader line of products that cater to its multicultural customer base. Furthermore, Canada’s aging population creates a whole new market as consumer product choices change. Income distribution has evolved drastically past decades with the increase in duel-income families. A focus on health in recent years, paired with higher discretionary income, has fueled a growing industry of organic and nutrition-infused products. People cook less at home and seek more faster and convenient source of foods.
Although 70% of Canadian meals are consumed at home, they are more likely to be delivered, ready-to-eat takeouts, or catered on-site. In addition, savvy consumers are well-informed and demand one-stop shopping to not only purchase food products, but also non-food items such as daily household items. Grocery Industry Porter’s Five Forces Model of Competition (See Appendix) The Canadian grocery industry is highly competitive and has high barriers for new entrants. Canadians pay the lowest prices for food in the world. Furthermore, Loblaw, Sobeys, Safeway, Metro, and A&P take up nearly 70% of Canadian grocers’ market share.With so many dominant players in the industry, the grocery store suppliers’ bargaining powers are relatively low, depending on the scale of the stores.
Furthermore, the customers’ bargaining powers are very high since there are so many substitutes and competitors to choose from, including restaurants, take-out stores and fast food shops. Thus dissatisfied customer can simply switch to other competitors. Grocery stores have attempted to reduce substitution threats by offering ready-to-eat foods. Smaller grocery stores are unable to compete with these big boxes and are having a difficult time surviving.The grocery market is a slow growth industry and has an intense rivalry in terms of pricing and increasing consumer service.
There is a high exit barriers due to the costs involved with the loss of labour, suppliers, and other investments. Industry Attractiveness: Food is more than a necessity for living and it also a reflection of cultures. Changes in people’s lifestyle affects what they eat. Such trends influence grocery stores offerings. A growing number of grocers are desperate to find ways to compete and survive by differentiating themselves from others.New entrants are likely to find the industry less attractive due to the maturity of the market and the high level of competition.
Internal Environment: Loblaw Companies Limited Performance Despite a decreasing number of total grocery stores in Canada, Loblaw is continuing its aggressive growth strategies and is currently Canada’s largest food distributor with sales of $23. 1 billion in 2002. Its market share is 32% in Canada and it is among the top 25 in the world. As a leader of the grocery market, Loblaw gives consumers a good place to shop, good price and good time at the store to be the helper of everyday householders.
Strategy Distribution (Location) Strategy Contrary to it competitors who lease their stores, Loblaw owns 63% of its stores, many of which are in prime location. This strategy has enabled Loblaw to successfully increase its corporate stores’ average sales per square foot, while its competitors have experienced a gradual decline in sales per square foot. Private Label Strategy Loblaw introduced its own private label “President Choice” in 1984. The label offered consumer good quality products at a lowered cost. This appealed to customers and Loblaw was able benefits from the first-mover strategy.By taking advantage of its suppliers’ low-level bargaining power and the industry trends of high-priced products, Loblaws created high quality private label to target different customer segments.
Loyalty Program Strategy Due to high competition in the industry and high bargaining power for buyers, Loblaw offers loyalty programs including President’s Choice Financial and PC MasterCard, to encourage repeat business. By providing added-value services, consumers can benefit from unique experiences and Loblaw can further differentiate its brand from its competitors.Meet the Needs Strategy To satisfy consumers’ needs, Loblaw established strong regional brands such as Provigo in Quebec, and also built superstores that focus on particular product categories. By adopting a multi-format approach, Loblaw is able to cover a wide range of prices to further appeal to consumers. By the same token, responding to the demand of one-stop shopping and the tendency of growing convenience store, Loblaws also offer non-food items to meet the daily needs of every household.
Core-competencies Resources:Capabilities:Wide product range- Effective promotion of brand-name products Value-added services – Effective customer service Up to date technology- Large and well-designed store Convenient locations Core competencies: Based on the Five-Business-Level Strategies table, Loblaw utilizes the differentiation strategy since they have a broad target and go beyond being a cost leaders; they offer various product lines to target different cost segments. Whereas “President’s Choice” is their most recognized food brand in Canada, the economical brand “no-name” was developed to target price onscious consumers. Alternatives Loblaw should change its strategy. Pros: One of world’s most profitable company, Wal-Mart is a major threat to Loblaw and it is well known as a strong cost leader in retail stores. The faster is the better. By changing its strategy and reacting swiftly, it will prevent or at least soften Wal-Mart’s blow to Loblaw’s sales and market share.
Cons: Loblaw has been in the grocery market for a long time and therefore has refined its procedures over time. A large scale company like Loblaw will have a hard time changing its direction.Furthermore, there may be resistance to change from employees. In addition, they would be at risk to loosing its loyal customers as well as concerns regarding the changing quality of product and services.
Loblaw should not change its strategies. Pros: Although Wal-Mart and Loblaw share similar commodities, their resources are different and Loblaw has its unique advantages to reach a broader base of consumers. By keeping its strategies, it can avoid extra expenses, time and effort, and can focus on what it’s doing right now.Cons: Not taking action is a high-risk bet for Loblaw, considering how much success Wal-Mart has in the retail industry. Loblaw should not change its strategies but keep improving them.
Pros: Loblaw’s business strategies are continuously updated and proven to be very successful for years. However, similar to changes within demographic segments, the grocery industry is constantly evolving. By monitoring what is going on in the industry and making necessary adjustments to satisfy consumers’ needs, Loblaw will successfully keep its loyal customers and will continue to be at the top of the Canadian market.Cons: There may be resistance to change within the company and perhaps even from its customers.
Furthermore, slight improvements will not be enough to prevent Wal-Mart from becoming a dominant player in the grocery industry and Loblaw will eventually lose some of its market share. Recommendation Loblaw should not change its strategies but keep improving them. For several decades, Loblaw has streamlined their procedures and operations to maintain its competitive advantage.Its ability to continually innovate and become more efficient and effective is hard to imitate.
Loblaw should further develop its customer services to improve the level of consumer experiences. One of the trend e-grocery might be attractive field for Loblaw. In addition, it should provide more value-added services in its stores, such as drop-off dry cleaning, post office and photo development shops, making it a convenient one-stop shop, and equipping itself to compete in an ever more competitive industry.
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