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Loblaw shuffles ranks in wake of discount threats

Executives at Loblaw Cos. Ltd. are bracing for a tougher era of competition by quietly shaking up their management ranks. Their mission, in part, is to focus more effort on the grocer's discount chains.

The recent changes are aimed at bolstering Loblaw's low-cost business, which includes the No Frills and Great Canadian Superstore banners, as it takes on a growing array of rivals. The country's top grocer assigned a separate merchandising and operations team to work solely on its discount banners, and different managers to take charge of its conventional chains, such as Loblaws and Provigo.

The shuffle is part of Loblaw's wider moves over the past four years to recover from a botched restructuring. Now it faces even tighter competition. Target Corp. , the savvy U.S. discounter, will set up shop in Canada by 2013 while discount giant Wal-Mart Canada Corp. is rapidly adding more Supercentres with full supermarket offerings.

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Analysts say Loblaw is among retailers that stand to be squeezed the most by Target: the U.S. chain's popular fashion lines could pressure Loblaw's fast-growing Joe Fresh Style clothing business.

This week, Loblaw president Allan Leighton is expected to shed light on the grocer's management facelift when he speaks at a CIBC World Markets conference on Wednesday and releases the grocer's fourth-quarter results the following day. The shuffle will allow the company to "be more agile in responding to changes in the competitive environment," Julija Hunter, a spokeswoman for Loblaw, said in a recent e-mail.

The changes may help Loblaw improve its strategy on pricing. Over the past year, the supermarket sector has been plagued with deflation or no price gains. But with commodity prices rising dramatically, suppliers now are jacking up their wholesale prices, prompting some grocers to begin passing on the increases to consumers.

Last month, food prices in Canada grew 0.5 per cent, matching the increase in December, Statistics Canada reported on Friday. Already Metro Inc., the country's third-ranking grocer, has warned of higher prices at supermarkets.

Eric La Fleche, chief executive officer at Metro, said last month it would soon start raising prices in categories such as bread, pasta, rice, oils and coffee. "We are confident that the market will allow for those increases," he said. "In certain categories we're expecting some pretty significant increases."

Still, Loblaw has been aggressive in its discounting, according to Kevin Grier, senior market analyst at the George Morris Centre, an agri-business think tank in Guelph, Ont.

A local survey he conducted this month of frequently purchased items, such as cereal and ketchup, suggested that Loblaw's conventional-store prices for national brand products were lower than those of Metro and Sobeys, the country's No. 2 supermarket chain. His study's average price per item: about $5 at Loblaw, $5.55 at Sobeys and $5.90 at Metro.

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Loblaw's emphasis on price puts pressure on its competitors. "The landscape in the Canadian grocery industry is getting rougher," Mr. Grier concluded.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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