LEDERER OUT AS LOBLAW SHAKES UP TOP MANAGEMENT

ELLIOT ZWIEBACH

TORONTO - The difficulties Loblaw Cos. has encountered as it prepares for the rollout of Wal-Mart supercenters in Canada might have contributed to the resignation "by mutual agreement" of John Lederer as president of the chain.

In the wake of Lederer's departure, W. Galen Weston stepped aside as executive chairman of Loblaw to make way for his son, Galen G. Weston, who will run Loblaw with Mark Foote as president and chief merchandising officer and Allan Leighton being named a Loblaw director and deputy chairman of the parent company, George Weston Ltd.

The elder Weston continues as chairman and president of the parent company.

Although Weston said in a conference call with analysts last week that Foote would be "a clear No. 2" and Leighton's retail proficiency "will be of inestimable value in terms of strategies and how to get there," Canadian analysts said they believe it will be 53-year-old Leighton - who is chairman of the Royal Mail Group in the United Kingdom and the former president and chief executive officer of Wal-Mart Europe and former CEO of Asda Stores - who will serve as de facto CEO of Loblaw while the 34-year-old Weston gets more seasoning.

Leighton has been an adviser for more than five years to the Weston family, which controls approximately 62% of Loblaw's shares through George Weston Ltd., a Canadian food processor. He has not previously held a formal position at Loblaw. Foote joined the company only last April as executive vice president, general merchandise, after 27 years with Canadian Tire, including five years as president of that company's core retail operation.

Lederer's resignation - both as president of Loblaw and as one of its directors - came as somewhat of a surprise, analysts said. He could not be reached for comment. Lederer had been president of Loblaw since January 2001.

Galen W. Weston credited Lederer for making "a significant contribution" during his 30-plus years with Loblaw, "including the introduction of President's Choice Financial, the successful launch of the Real Canadian Superstores in Ontario and the adoption of a truly national business strategy."

Analysts said Lederer took the credit, and ultimately the blame, for an aggressive re-positioning of the company to become more national in its orientation and more price-oriented, combined with a stronger emphasis on general merchandise, as it sought to position itself for the entry of Wal-Mart supercenters into the Canadian marketplace. However, Lederer's initiatives to implement changes in Loblaw's supply chain operations were slow to pay off, analysts said, and the parent company apparently became impatient, leading ultimately to the resignation.

It also appeared W. Galen Weston may have been anxious to put a leadership succession plan into place that involved his son, observers said.

The younger Weston joined Loblaw in 1998 after graduating with honors from Harvard University and Columbia University, and served most recently as senior vice president for corporate development, responsible for the ongoing strategic review of the company's business; he previously held senior management roles on operations, President's Choice Financial and e-commerce.

As executive chairman, he said he will oversee retail operations, labor relations, finances, real estate and construction, President's Choice Financial and the employee development services group, while Foote will oversee food and general merchandise marketing, sourcing and procurement, supply chain and information systems.

That represents a change from Lederer's tenure, when W. Galen Weston, as executive chairman, had less of a hands-on role than his son, the new executive chairman, will have. "But this is a new structure under a new executive chairman," with responsibilities divided differently, the elder Weston said.

According to Perry Caicco, an analyst with CIBC World Markets here, "The new organizational chart at Loblaw is not as clear as investors would like. They've put Galen G. Weston in charge of the business, with a group of senior executives reporting to him and with Al Leighton as an adviser. But given Leighton's retail experience and seasoning, it appears he will be the behind-the-scenes CEO."

Another analyst, who asked not to be quoted by name, said he agreed "that Leighton will provide a great deal of assistance to the much younger Galen Weston."

Various analysts who participated in the conference call also implied, with their questions, their belief it will be management by committee at Loblaw, though Loblaw executives sought to dispel that notion.

Asked during the conference call what his role will be, Leighton replied, "To provide assistance to the executive chairman and the executive leadership team."

Asked whether he will serve in a mentoring role, Leighton replied, "No. My title is deputy chairman, and I have a reasonable amount of retail experience, so I'm there to be utilized by the management team running the business on a day-to-day basis."

Foote said the new structure does not mean the company will be run by a management committee. "As in any large organization, management operates as a team, with each person having a specific role to play and with certain functions reporting to them. The executive chairman and I have a great group of capable executives working with us, and it's less important to sort out who reports to whom than to understand that the company runs as a unit."

According to Galen G. Weston, "My title reflects my full-time involvement in the business - the active leadership role I will take on the board and the fact I will help supervise management performance in pursuit of our objectives."

Commenting on the overall leadership changes, Weston said, "All three appointments strengthen the leadership structure [at Loblaw] and give us the depth, breadth and experience that will take the company forward, and they reflect the Weston family's commitment to the succession process."

Asked whether there were any other catalysts for the changes other than Lederer's resignation, the younger Weston said there were not. "But this was not a hasty reaction," the elder Weston added.

When an analyst pointed out that Weston, Foote and Leighton are relative newcomers, whereas the top executives at Loblaw as recently as two years ago had each been with the company for 25 years or more, Weston responded, "We're in the middle of a transition, and in any transition, there is value in combining new input with [that of] people with a long-term understanding of the business. That is a good mix, and we have no intention of changing that mix."

Loblaw is Canada's largest retailer, with 1,058 stores and annual sales of $24 billion (U.S.).