TORONTO — Allan Leighton, now officially behind the wheel at Loblaw Cos., did what analysts expected of him last week: He stepped on the gas.
Acknowledging that a five-year turnaround plan announced a year ago was already behind schedule, Leighton last week announced a slate of initiatives intended to accelerate change and push Loblaw's transition from an organization focused on cost controls to one that's more about selling. His plan involves accomplishing many of Loblaw's established plans on a tighter schedule, but also introduces some elements seemingly in conflict with the themes thus far — specifically, adding labor to some stores after rounds of cost-cutting and reintroducing local sourcing to an organization that had strenuously pursued centralization.
“We feel that we have been on defense, not on offense. We feel that we've been a bit more reactive than we should have been,” Leighton explained in a conference call last week, his first since being named president in a management shakeup that saw the departure of Mark Foote, president and chief merchandising officer, from the leadership triumvirate — which also included Leighton, deputy chairman, and Galen Weston, executive chairman — that had led Loblaw since the departure of former chief executive John Lederer in 2006.
“We are the No. 1 player in this market. We have the big market share, we have the assets, we have the brands, and I think you will just see that we will now start to utilize those.”
Leighton detailed five adjustments to Loblaw's turnaround he said would “signal the ramping up of our recovery program, and add clarity, focus and inject much-required pace to the process.”
Significant food and service improvements at conventional stores: Leighton said the effort will focus on improving front-end service and more local sourcing of produce, inspired by the success of Loblaw's “Great Food” pilot stores. He said that 20 stores will be refurbished by the end of the year and 1,000 new service jobs will be created.
Superstore and No-Frills conversions in Western Canada: Leighton said Loblaw will begin an aggressive remodeling program at 25 Superstore locations in Western Canada, while converting approximately 20 of the company's Extra Foods conventional stores in urban markets to its No-Frills hard-discount banner. Over the long term, Leighton suggested the 106-store Extra banner will become a smaller part of Loblaw's overall business, a move that would save the company labor costs.
Enhancing local sourcing: Although Leighton said he is pleased with Loblaw's conversion to centralized procurement, he said he will add a “small number” of local merchants that would account for around 15% of the company's overall buying.
A focus on upgrading distribution and infrastructure “foundations”: Leighton said the 18-month program will target physical improvements at warehouses and implementation of “simple, off-the-shelf, non-proprietary” tools to handle warehouse management, replenishment and forecasting.
Emphasis on private label: Leighton said Loblaw will focus on restoring its President's Choice brand “as the most formidable Canadian private label, culminating in a massive 25th anniversary program.”
Analysts contacted by SN said the transition to Leighton, the executive noted for his success at Wal-Mart's Asda chain and at the postal service in his native England, cleans up the organizational structure and provides accountability and control that was lacking under the previous, three-headed arrangement.
“It is now Mr. Leighton's company to repair, stabilize and grow,” Perry Caicco, an analyst for CIBC World Markets, Toronto, said in a research report. Caicco in recent months had been outspoken in his criticism of the previous corporate structure, though he acknowledged the latest transition will bring additional instability in the first months.
Another market observer, who asked not to be identified, said the transition to Leighton will bring “tactical and timing” changes to Loblaw, but not a massive shift in strategies.
“He's a very dynamic individual, and he focuses on getting a lot done in a short amount of time,” the source said. “He may have felt that the company wasn't running with enough retail instinct. Instead it was methodically slicing and dicing data.”
For the first quarter, which ended March 22, Loblaw said last week that net income improved 14.8% to $61.2 million (U.S.), but when adjusted for restructuring costs and other items would have been down by about 25%. Sales, meanwhile, increased 2.8% to $6.4 billion, and same-store sales were up 2.8%, although sales were boosted by the shift of the Easter holiday to the first quarter.