Loblaw Targets Pricing, Merchandising

JON SPRINGER

TORONTO — Acknowledging problems that go beyond supply chain glitches, the new leaders of Loblaw Cos. here last week laid out a long-term plan to fix the embattled retailer on several fronts.

Loblaw will lower prices, increase private-label penetration, improve fresh food merchandising and revamp the Real Canadian Superstore banner as part of a recovery that will take three to five years, Galen Weston Jr., the newly named executive chairman of Canada's largest retailer, said in a presentation to investors here last week. The plan, dubbed “Making Lob-law the Best Again,” was based on results of a “100-day review” undertaken by Weston and his executive team shortly after they took over last year.

The plan aims to improve sales by 5% and earnings by 10% annually and generate annual free cash flow of $215 million (U.S.), Weston said. Those figures, however, are “aspirational” and would not be achieved during the next year, which the company will devote to “fixing the basics,” Weston said.

“We have great stores, but they're not run well enough. We have great products today, but they're not being merchandised well enough. We have great people in our stores, but they're not being given the tools to do their jobs well enough,” Weston said.

Loblaw has struggled in recent years in part because of difficulties in executing a supply chain initiative, problems that ultimately resulted in the removal of former chief executive officer John Lederer and the naming of a new team of executives under Weston — the son of the former longtime chairman, Galen Sr. — this fall.

“We would not be embarking on this extraordinary list of changes if we did not believe it was absolutely necessary,” the 34-year-old Weston said. “And we are making these decisions before it is too late. My father started in this job at the age of 31 or 32 and was chairman of the company for 34 years. If I don't get hit by a bus, and we continue to do a good job, I'll be here just as long.”

Bill Chisholm, an analyst with MacDougal, MacDougal and MacTier, Toronto, told SN in an interview he was impressed with the younger Weston's candidness about Loblaw's problems and with his attitude toward fixing them. “I happened to have spoken to Galen Sr. before the meeting, who's as enthusiastic and full of fire as ever, and young Galen is a chip off the old block in that sense.”

Loblaw said its fresh food presentation would improve with better merchandising and a more consistent offering in stores. The company added that it will address its price perception in a variety of ways, noting it has overinvested in price in certain items but was worse off than it realized in others.

“They want more emphasis on being in-stock with fresh produce. They have had a problem with availability in stores for some time, and until now the perception was that was related to the distribution side,” Chisholm said. “But they acknowledged that part of the problem was poor awareness of in-store conditions and a lack of good merchandising in some cases.”

Loblaw's private-label products are a “powerful differentiator,” marked to grow from 25% of revenues to 35%, Weston said. Its President's Choice private label will be promoted with a $43 million campaign, and the Joe Fresh apparel line can grow to an $850 million business from its current level of around $260 million, he added.

Joe Fresh, along with kitchenware, pharmacy, and health and beauty products, will be the focus of an edited selection of nonfood goods offered in a revamped Real Canadian Superstore format, said Mark Foote, Loblaw's president and chief merchandising officer. That format will be the vehicle for Loblaw's future growth.

“The addressable market in general merchandise is almost the same size as it is in food. There is no reason to believe that a company that puts 12 million customers through the doors a week can't be successful in limited general merchandise categories with great appeal to customers,” Foote said.