Loblaw´S Strategy – Defending From Wal-Mart

LOBLAW´S STRATEGY – DEFENDING FROM WAL-MART

Team Project
Business Strategy
University of Toronto

November 29, 2010

LOBLAW´S STRATEGY – DEFENDING FROM WAL-MART

INTRODUCTION
The following report evaluates Loblaw´s approaches to execute its strategy and includes some recommendations for improvement. It assumes that the conditions and information given in the case-study as of 2006 arethe current situation.

1. EXTERNAL ANALYSIS – THE GROCERY INDUSTRY

1. FIVE FORCES ANALYSIS
The grocery industry in Canada is a very attractive one. The threat of new entrants and the competitive pressures from the sellers of substitute products are weak and the power of suppliers and buyers is moderate. Enclosed is the analysis of the forces that drive this industry.

a. RivalryBetween Competing Sellers - Relatively high force: The industry is characterized by a relatively high rivalry between several national players of different sizes[1]. It has intensified with Wal-Mart’s entrance into the Canadian market.[2] The industry is mostly price driven and has a slow market growth. The cost for customers to switch from one competitor to another is relatively low.

To drum upadditional sales, competitors constantly innovate to reduce costs and use strong marketing tactics, such as special sales promotions, loyalty programs, heavy advertising and significant rebates.

b. Potential New Entrants – Weak force: The pool of potential entry candidates from the Canadian market seems to be small. However, other large US chains may consider expanding to Canada (followingWal-Mart’s lead).

c. Sellers of Substitute Products – Weak force: Customers can satisfy their needs with the same products and services provided by convenience stores, superstores and neighborhood markets, and by purchasing fast-food in take-away shops or having meals at restaurants. In fact, for customers it is generally more convenient and cheaper to go to a supermarket or to a superstore.

d.Suppliers – Moderate force: In the retail industry suppliers generally have little power over retailers. However, where consumers have a strong brand loyalty, suppliers with strong brands have a stronger bargaining power over retailers. Those without strong brands on their shelves are likely to lose customers to other competitors.

e. Buyers – Moderate force: While weak on an individual level,customers collectively drive the grocery industry in Canada. They influence the structure of the retail industry through varying demographic and economic trends, such as changes in disposable income, increasing ethnic diversity and health consciousness and demand for fresh high-quality products at bargain prices, and extended opening hours.

2. KEY SUCCESS FACTORS[3]
Since the grocery industryis mainly commoditized, it is difficult for grocers to implement differentiation strategies. They have to mainly compete on prices, and hence operational efficiencies are critical. The following factors spell the difference between profits and losses and between competitive success and failure in this industry:

a. Low cost operations: proficiency in supply chain activities, ability to captureeconomies of scale, to adopt labour-saving operating methods, to use bargaining power to gain concessions from suppliers, and to hedge against food price fluctuations
b. Low prices to customers
c. Efficient warehouses and stores’ capacity utilization
d. Convenient locations
e. Wide product ranges of good quality
f. Value added services such as customer loyalty programs
g.Cutting-edge technology to achieve operating efficiencies (i.e. manage supply chain and inventory, and predict consumer demand)

2. INTERNAL ANALYSIS

2.1. Current vision
Loblaw´s current vision is becoming the low-price leader in all its business formats, with a goal to achieve long term growth for its stakeholders.

2.2. Current strategy
The company has chosen a low-cost strategy built...