After more than two decades as an icon of excellence in the grocery world, 1,100-store-strong Loblaw is facing one of its greatest challenges.
The Canadian grocery chain has seen its shining reputation take a tumble, subjecting shoppers to empty shelves, wilted lettuce and unkempt aisles. As the nightmare-rooted in a seriously flawed reorganization of distribution lines-deepened over the past couple of years, the company's shareholders watched the value of their holdings plummet by billions of dollars.
And now Wal-Mart, the U.S. behemoth is making its long-anticipated push into the grocery marketplace. It threatens to wreak the same havoc to food retailing in Canada that it did in the United States.
Enter Galen Weston Jr.
The son of Loblaw controlling owner Galen Weston Sr., the 34-year-old's job is to refocus Loblaw, putting the emphasis back on food in general and private labels like President's Choice in particular.
Will it be enough?
As Marina Strauss examines in Memories of Excellence in the February issue of Report on Business Magazine, it appears that the Loblaw chain has lost its way. The legacy of the storied Weston name rests on the shoulders of young Galen Jr.
"There is still a tremendous amount of work to do," Galen Jr. says. Trouble is, in the meantime, Wal-Mart has arrived in Canada's grocery aisle. And Sam Walton's baby didn't get to be the biggest retailer in the world by playing nice.
Ms. Strauss covers the retail sector for The Globe and Mail, touching on a wide range of topics from the collapse of Eaton's to the more recent takeover of Hudson's Bay Co. She previously wrote on marketing and consumer products as well as professions for the Report on Business. And she covered legal affairs and Parliament Hill in Ottawa and City Hall in Toronto for the Globe. Ms. Strauss also covered labour issues and general assignments at the Montreal Gazette before joining the Globe and Mail.
She has an honours Bachelor of Arts degree from the University of Toronto and studied at the Universite Aix-Marseille in France.
Ms. Strauss is online now, until 1 p.m. to answer questions from readers about the Westons, Loblaw and the Canadian grocery market.
Your questions and Ms. Strauss's replies appear at the bottom of this page once the discussion begins.
Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.
Sasha Nagy, Business features editor, globeandmail.com: Hi Marina: Thanks for taking the time to answer questions on your ROB Magazine cover story on Loblaw and the Weston family. Your piece raises so many compelling issues surrounding this supermarket giant. What is it about Loblaw that makes it such an intriguing company and one that seems to elicit such an emotional reaction from readers?
Marina Strauss: Hi Sasha: Thanks for inviting me. It's quite true what you say, there seems to be very few other companies that I write about -- except perhaps Wal-Mart -- that elicit such an emotional response from readers. I think it's because Loblaw is such a big company, and so many people either shop at its stores, work at them or know people who work at the company. They feel a personal connection to the supermarket chain. And if they're spending their money there, they want to get some say in how it's being run.
Edward J. Sharpe from Edmonton (ex. St. John's) writes: Hi Marina. I bought some Loblaw shares after the senior leadership moves they made later in 2006. The successful settlement with the UFACW going into the Thanksgiving Day weekend was a definite positive. The big merchandise write-down didn't bother me much either. I choose to say nothing about this week's staff cuts because there are people losing their jobs. One very curious item though was hiring Dalton Phillips as COO. This guy quarterbacked a major chunk of Wal-Mart's defeat in German (see they can definitely be beaten at retail). There is also his affinity for camera lenses, which is less than comforting. Can this guy be possibly be good for the Loblaw enterprise, or could he turn out to be more of a Dolton?
Marina Strauss: Hi Edward. Thanks for your question. And I have to say you're not the first person to ask me about this appointment. Dalton Philips worked at Wal-Mart in Germany, and that was one of the divisions that Wal-Mart recently abandoned, because it wasn't working out. So a lot of people are putting the two pieces together and asking: if Wal-Mart didn't make a go of things with Dalton there, will he be able to help Loblaw? I think that's worth asking, and I can only say that it raises a lot of questions. The new top management at Loblaw is looking of new blood and YOUNG blood. They've got that in Dalton. Hopefully they're looking for even more than that, too.
Mark Liu from Markham, Ont. writes: Ms. Strauss, thanks for taking questions. How do you think the battle will shape out between Loblaws and Wal-Mart going forward? Do you have confidence in the young Weston to turn the company around?
Marina Strauss: Thanks for participating in the discussion, Mark. As a reporter, the battle is shaping up to be a prime one to cover. … But beyond that vested interest, it will be a tough battle and hard fought. Wal-Mart brings a ton of resources to its side when it wages this battle. But more than that, it's learned a lot from the grocery sector in the U.S, and from its experience so far in Canada. And it's applying those lessons in its Canadian Supercentres. So already we see that Wal-Mart has adapted the grocery/Supercentre model to a Canadian model. The Supercentres in Canada so far are pretty good to navigate and carry pretty good quality grocery products. That comes at a time when Loblaw is struggling in its core category. So that's going to be tough for Loblaw, certainly in the short term. Loblaw needs to get its act together very quickly. As for the young Weston, this is a very capable man. But a lot will depend on the advice he gets, and execution of the plan. He has some strong people to lean on, such as Mark Foote. But there are a lot of new people coming in, and old people leaving. That means a lot of short term disruption at Loblaw. It's a huge challenge.
Ian McDonald from Toronto writes: Loblaws wants to improve its performance? It would seem to be fairly simple from my point of view. They should actually have edible groceries in the stores. There is a Supercentre across the street from my home. Whenever I go there there are lots of empty shelves and the fruits and vegetables are generally in such bad shape I wouldn't feed them to a pet. Maybe looking after the core of the business and stocking properly would help?
Marina Strauss: Hi Ian. When you say there is a Supercentre across the street from you, and you are in Toronto, I am assuming you mean a Real Canadian Superstore, which is owned by Loblaw (Supercentres are Wal-Mart's stores). So if that is the case, you raise an important point. Loblaw needs to focus on the basics: offering fresh, great groceries, and stocking its shelves properly. And yes, as I have documented in my ROB Magazine article, Loblaw really has failed in those key areas over the past couple of years. Customers have been abandoning the Loblaw stores as a result, and Loblaw's financial performance has suffered. Can there be anything more basic as having the right product on the store shelf at the right time, when the shopper wants it? Supermarket Economics 101. Thanks for your thoughts.
Mahjabeen Chowdhury from Toronto writes: Why are Canadian businesses losing to U.S. giants like Wal-Mart? Is it because our commitment to quality customer service and maintaining the quality of products dwindling? Perhaps yes. But I do not believe Wal-Mart provides any customer service or has good quality products on their shelves either. Why does Loblaw needs to lose to a company like Wal-Mart? We consumers are so focused on buying cheap goods, ethics of fair trade no longer matter to us. Do we need a public education on these matters?
Marina Strauss: Thanks for your comments. I do find that shoppers speak through their wallet: They are drawn to the cheapest alternative, if that alternative has decent selection and is convenient to get to. And I would add that many Canadian retailers have not been that strong on customer service … so that what may be weak service at Wal-Mart doesn't always stand out as being the worst service among retailers here. As for ethical sourcing, even the Canadian retailers are sourcing from overseas today. So customers aren't necessarily supporting fairer trade just because they're shopping at a home-grown store.
Claude Larochelle from Kirkland Canada writes: A fool is one who repeats the same mistake twice! I remember that, way back in the '70's, Loblaw ventured in the non-food sector, with a large chain of discount department stores called Sayvette ... They had to write off their investment, just like Steinberg had to do with their Miracle Mart venture. Foods and non-foods stores are entirely different animals (margins, merchandise turnover rates, fashion ...). Maybe it is easier to to do the reverse transition like Wal-Mart did ... Or, is it that they had better pilots to steer the journey?
Marina Strauss: I think you raise an interesting point, Claude. It is a challenge for a food retailer, that is used to selling goods constantly and replenishing its shelves all the time, to have to turn to slower-selling non-food merchandise. It's a whole new way of having to manage inventory. The non-food goods stay on the shelves longer, and have to be replenished at a slower pace. The grocery "pilots" may find it a tougher task to adapt to the general merchandise universe….That said, the pilots at Wal-Mart may also have been better prepared for their journey. And they had hired some pretty savvy executives from the grocery world to help navigate the flight.
Lucille Hume from Toronto writes: Loblaws should get rid of this new clothing merchandise section as seen in their Toronto Queens Quay Location. It is infuriour quality merchandise and we want President's Choice and the best produce they have been known to have.
Sasha Nagy writes: Marina, can you comment on the direction Galen Weston Jr. is taking with the store. I found it interesting that he seems to have spent his time getting to know the grocery business, particularly in the area of the company's No Frills branch. Why then, do you think he has decided to expand Loblaw's clothing line?
Marina Strauss: Thanks for you feedback, Lucille. Other shoppers have also told me that they weren't impressed with the quality of the clothing merchandise at the Loblaw superstores. But most of the feedback I have got, I have to admit, has been pretty positive. People have found some cool tops and jackets in the Joe Fresh Style line, for example. The pieces are pretty trendy for that season, and priced really well. And that's the idea: something you wear for a season and toss, and then come back the next season for the next hot trend. It updates your wardrobe and doesn't break the bank. But I agree it's risky to do anything that may take away from focusing on high quality produce, food and private label goods. If they don't get that right, they're in trouble.
Galen Jr. is very taken with the Joe Fresh Style clothing, and with Joe Mimran, its creator. He wants to expand it, and he's giving Mimran quite a lot of leeway to make decisions about the collection. Galen Jr. likes his fashion sense; and the low prices work well with the superstore positioning. It's also a way for Loblaw to assert itself against Wal-Mart , which has had its own challenges in boosting its fashion business. Galen Jr.'s experience in the discount No Frills division has given him some insight into low-price retailing. And there are similarities between selling the so-called "fast fashion" and groceries -- both entail quick intentory turnarounds, replenishing shelves quickly as goods get sold. From what I can gather, the Joe Fresh line has done well for Loblaw, and sales have at least met their targets.
James Doyle from Canada writes: Ms. Strauss, would agree that a good part of Loblaw's problem stems from their holding on to a model that no longer works. Customers have lost interest in President's Choice products; they want more variety brand products at reasonable prices. The high margins of this model are simply not sustainable with today's competition. Their ratio of store brand items to total items carried is the highest of any major North American supermarket chain.
Dennis Daoust from Kingston writes: Hello Ms. Strauss. I am retired so I cherry pick when it comes to shopping. Being on a fixed income, we have to be carefull on core expenses. But when it comes to buying something special, Loblaws is still the best, althought expensive.
I recently added to my 'L' holdings in anticipation to a rise after the Loblaws February shareholders meeting after which time I will sell. I figure all the bad news is behind them and there will be nothing but positive outlook for the future. What is your thoughts.
Marina Strauss: I think Loblaw still has some challenges ahead. There are still a lot of unknowns, including the influx of new people at the company, and the exit of a lot of old hands. That adds up to a lot of uncertainty. It will be good to finally find out the new team's complete strategic plan at the Feb. 21 analysts' meeting. But a lot of retail is in the execution of the plan, and not necessarily in the plan itself (although that's important.) And Loblaw's execution hasn't been up to scratch of late.
R Kinder from Dartmouth Canada writes: Hi. I went to Wal-Mart shortly after their opening in the new Dartmouth Crossing. This is the first I've seen of the new 'Super Centres'. Not impressed. A very intense feeling. Very institutional. As the previous gent suggested, sticking to core practices and doing them well would seem to be key. The Presidents Choice line is a good draw. I like the 'Market' feel of the smaller stores. Wal-Mart parking lots are a disaster. Will Mr. Weston be able to get people to make a distiction between the two styles?
Marina Strauss: Hello to the Dartmouth writer, with such a neat name! I'm a bit confused about the store you are referring to. There are no Wal-Mart Supercentres outside of Ontario. Is this a Loblaw Superstore in Dartmouth? If you are comparing the Loblaw Superstore to smaller Loblaw-owned supermarkets, you make a valid point. And I think Mr. Weston Jr. is quite aware that the company needs to make clear distinctions between the smaller grocery store and the larger discount superstore. So I think the new boss understands the issue, and has expressed a wish to differentiate the two. We will see how he executes over the coming months.
Jim McCunn from Dartmouth, N.S. writes: As a local success story here in Atlantic Canada, I would like your opinion on Sobeys chances of surviving the food war that is coming with Wal-Mart Supercentres now in Canada. Do you believe that Sobeys will have to go the route of Loblaw and centralize merchandising, procurement, etc. in Toronto?
Marina Strauss: That's interesting that you talk about Sobeys as a local success story in Atlantic Canada. The chain is based in that part of the country, but has been overtaken in many respects by Loblaw. Loblaw has built a lot of stores in the region, and raised its profile considerably. This is certainly the time for Sobeys to profit from Loblaw's troubles. And to some extent it has. I think every major retailer today has to centralize, to some degree, its merchandising and procurement. Sobeys won't find the Wal-Mart easy to contend with.
Bernard Faisy from North Bay, Ont. writes: Thanks for taking questions. Given Wal-Mart is not union friendly and food stores tend to be highly unionized, how do you see this playing out?
Marina Strauss: Wal-Mart's non-union position does give it an advantage in the much unionized Canadian grocery field. Loblaw has been aware of that, and has been working with its unions to try to deal with the challenge.
R kinder from Dartmouth Canada writes: To clarify my earlier comment - there is a WalMart in Dartmouth that just opened a week or so ago. It includes a grocery section. There are Loblaw Real Atlantic Superstores here of different sizes. The one closest to us is a smaller store with little in the way of dry goods. The larger store does have the Joe line but is not as appealing a store after being rebuilt a couple of years ago.
Marina Strauss: Thanks for the clarification. Wal-Mart has added pantry sections to a lot of its stores, although they don't have a full fresh food/produce component. Some of the larger Loblaw superstores can be difficult to navigate, and a culture shock for people used to smaller stores. Loblaw is still in the learning stages, in terms of making its large stores more customer friendly.
Sasha Nagy writes: Marina. Thanks for answering these questions, and apologies to those we didn't get to. Perhaps in closing, you could comment on what role you see Galen Jr. taking in terms of a public profile. Loblaw remains closely identified to the personality of Dave Nicol, who put such a stamp on the company that he is still sought to comment on the chain to this day. What are the chances of seeing Galen Jr. in this role as company pitchman a la Nicol?
Marina Strauss: It's been great to hear the thoughts of those who took the time to write in today. As for the suggestion that Galen Jr. become the Loblaw pitchman - I think that would be a great idea, but I don't see it happening. The Weston family is publicity shy, and wary about security matters. The family has had a security scare in the past. But maybe the younger generation may see it differently. Or, perhaps more realistically, it will find someone else in its organization to become the public face of Loblaw. Mr. Nichol has even offered up a French bulldog to accompany the new would-be celebrity.