Loblaw’s Case study

As a professional external consultant, my duty involves offering management consulting to assist companies to boost their efficiency and performance. After analyzing a business, I come up with probable solutions that are in line with the goals of the company. Through external consultancy services expertise, I have the capacity to transform specific business challenges.

Following the analyses of Loblaw, various issues stood out regarding the business’s operations and its market presence. Loblaw reports show a decline in its net income as the company faces stiff competition from others in the grocery market. In addition, the company’s future direction appears uncertain as management faces a deadlock. Loblaw offers a wide number of products and services, making the company over-diversified. Also, the company is yet to fully realize its consumers’ acquisition, revenue, and cost (Whitehaed, 2017). Loblaw also faces a threat from the prevalent food inflation, which will mean a drop in margins across its supply chain. The stagnation and slow growth of the grocery industry suppress Loblaw’s opportunities for shared value, and Warehouse clubs’ low price of goods potentially threatens Loblaw’s market presence.

An organization’s culture is core in creating its objectives and targets as well as defining operations to meet these targets. Currently, CEO’s and business executives are prioritizing change in organizational culture more in comparison to other aspects of leadership. Gartner surveys indicate that CHROs and CEOs assert, “Managing and improving culture” is the most important while managing talent. The reports also indicate that CEOs used the phrase culture, 7 percent more in 2016 than 2010, during earnings conference calls. However, most leaders implement the wrong tools in their efforts to drive culture change. Various mistakes are made by business leaders while trying to transform culture.  One such mistake is measuring culture by only using data (Leetaru, 2019). Often, firms turn to turnover rates as a valid presentation of morale and culture. However, such numbers offer false comfort. The feedback that reaches the leadership levels is usually filtered even when they do not purposefully wish to have it so. Raw data gets broken down further to averages and aggregates, making it more generic. The sanitized feedback, as termed by Gartner, eventually leads to misguiding business leaders on forecasting and managing the business’s revenue streams. In Loblaw’s case, traditional reports and data pertaining to the Canadian grocery market place Loblaw as a dominant company. The data indicate that Loblaw amasses a 30 percent share of the market segment, and only Sobeys, a rival retailer, is close to such a figure at 26 percent. Metro Inc., another competitor, possess only 10 percent of the grocery market segment. However, Loblaw’s superiority in the grocery retail segment does not mirror its sales and revenue streams and the company’s general financial concerns. As mentioned earlier, Loblaw,s 2016 financial records show a 14.6 percent decline in net income from the previous year. Also, the company has had stints of financial burden as it almost went bankrupt in 1971 and recorded a $219 million loss back in 2006. Clearly, the traditional records hailing Loblaw as a giant retailer and a business owning a large market segment is not reflective of the company’s negative financial record. It is likely that such traditional data is what prompts Loblaw to maintain certain cultures that are detrimental to the business’s bottom line, such as retaining the CEO role, as well as a bigger controlling stake of the company, to the Weston family as they are founders of the company..

In the business decision-making process, various aspects and factors may arise that make the management and leadership to make a bias decision. One way that firms end up making bias decisions is though narrowly perceiving likely outcomes while forecasting the future. Businesses stop at the first guess when developing probable future outcomes and fail to employ appropriate procedures when making the forecast.  One study looks at the response from hundreds of chief financial officers across different industries regarding estimating the annual returns over a nine-year period. The results indicate that their 80 percent ranges were accurate only one-third of the time (Jack Soll, 2015).  Such accuracy rates are significantly low, especially since the subjects are executives with wide knowledge pertaining to the U.S economy. Also, projections drift further away from the set targets after businesses assess their own plans, owing to the businesses’ desire to succeed, which skews their interpretation of the data. Most businesses are often overconfident while estimating, failing to leave room for uncertainty and risk. In the case of Loblaw, the company which traces its origin to humble beginnings as a self-serve grocery store trading through the cash and carry concept grew to become among Canada’s largest retailer. The company scaled to own over 550 corporate stores as well as more than 520 franchised stores across Canada. In addition to its food stores, Loblaw manages other retail stores including, No Frills, the Real Canadian Superstore and T&T Supermarket. Loblaw included other products’ retailers under its franchise through different acquisitions over the years. One such notable acquisition is Shoppers Drug Mart. In 2013, Loblaw bought over 1200 Shoppers’s drug stores for over $12 billion. Despite, Loblaw’s decades’ long prosperity from its wide range of brands, the company experienced a stint of bankruptcy in 1971. In response, the company’s leadership cut back the company’s growth to manage operations. One way they did so is by doing away with 100 stores whose performance was low. At the time, this represented half of the business’s total stores. Furthermore, as a response to the ever-rising competitive pressures from non-traditional players joining the supermarket sector, Loblaw allocated huge sums to establish new stores and renovate the 150 existing stores. The company, together with other competitors were also involved in a string of acquisitions, with Loblaw buying out firms operating in a completely different segment such as QHR Technologies.  Loblaw’s numerous acquisitions over time, as well as setting up many stores across the regions is seen as a response to the competition but are, in fact, more of bias decisions. The company’s leadership acts out of panic while using its resources to beat competitors. Loblaw’s management seems to make hurried decisions in its capital allocation and expansion efforts, which in turn return to haunt the business through financial instability.

Porter mentions various forces that shape competition among businesses and also across industries. One of the forces that stands out is the threat from new entrants.  The emergence of new players inin an industry leads to additional capacity and a will to acquire market share. Resultantly, it leads to pressures on prices, costs as well as investment rates needed to compete. The problem is worsened if the new entrants emerge from diversified markets as they can leverage their current capabilities and resources to stir up competition. The threat from new entrants hence places a cap on a business’s potential profits (Porter, 2008). A high threat leads to incumbents lowering their prices or increase their investment to discourage the new competitors. Porter goes further to state that accessibility to distribution channels is key in determining a business’s competitive force, especially new entrants. Secure distribution of products or services assists a business in outdoing others in terms of efficiency as well as market presence. Restrictive wholesale and retail channels and stringent ties of these channels by thriving industry bigwigs makes it tougher for others to join the industry. In our case, Loblaw faces competition for Canada’s grocery retail segment from newcomers such as Walmart Canada as well as Costco. The two warehouse clubs are a major competing force to Loblaw since they have a wide range of offers on non-perishable goods, which turn the retailers into a one-stop store after joining the food retail segment (Whitehaed, 2017). Consumers hence are likely to prefer the warehouses since they are more convenient. Furthermore, both Walmart and Costco operate under favorable contracts with their suppliers allowing the wholesalers to pass down reduced costs to their consumers. In the long-run, these warehouses forecast to generate an annual revenue growth of over five percent mainly due to the reduced costs in the products they offer their customers.  Loblaw on the other hand is pressuring its suppliers to absorb the rising costs. This led to differences between Loblaw and other parties prompting investigation by the competition bureau regarding treatment of suppliers by the company back in 2014. Also, seen as the wholesalers’ entrance and presence in the market is established and expanding, Loblaw and other incumbents resolved to invest in acquisitions  to bridge the gap in revenue gaps attributed to buyers’ switching to purchase foods and groceries from these wholesalers.

Determining Loblaw’s issues that make it problematic for the business to realize its target revenue streams as well as the drivers shaping the competition for the business is a step towards finding an appropriate solution. Various alternatives exist that Loblaw could use as probable solutions to its challenges. One of the alternative is applying innovative technology to leverage company data and information and come up with essential insights. Loblaw has already ventured into the digital space through its loyalty program for its PC brand. The PC Plus loyalty program composes of a mobile rewards system that offers tailor made deals to its customers on a weekly basis after analyzing the trends in their shopping habits. Shortly after, the company rolled out a nationwide membership of the loyalty program which amassed close to 6 million members and saw the company recording several hundred million dollars in terms of revenue. Loblaw needs to incorporate technologies further in its operations as well as management to boost its income.

Another alternative would be using pre-mortems to identify likely challenges. Unlike postmortems which analyze the cause of a previous failure, these pre-mortems are designed to put a future failure into context to try to identify its causes (Leetaru, 2019). Through this technique, businesses can identify potential challenges that common foresight would not establish. Pre-mortems benefit a firm by advocating for a more realistic risk assessment as well as assists in developing backup plans and strategies for exit. They also point out factors that are likely to influence failure or success, giving management the capacity to control the outcome.

Also, an alternative for Loblaw would be to implement policies supporting cultural change. The company’s leaders ought to be consistent in designing the operations model to transform the company’s culture (Leetaru, 2019). Leaders need to align their statements, their behavior as well as the company’s operations with regard to budgets, processes and polices. Loblaw’s leaders need to create structures, processes as well as incentives within the organization as well as substantially fund these projects.

Among the three options, the first would be the best recommendable for Loblaw. Loblaw’s primary challenge is the decline in its net income which it attributes to the stiff competition, discrepancies in management, and a problematic supply chain among other things. With innovative technology these concerns can be addressed individually but under an integrated system. As mentioned earlier, the company’s loyalty program is one of the company’s innovative strategies that has led to adding and retaining customers for Loblaw. Emerging technologies are able to consolidate vast amount of data and information, process the data to create useful insights and have the capacity to allow sharing of the data in real-time among the company’s leadership and relevant stakeholders. Through such technologies, Loblaw will quickly identify the mishaps in its supply chain, the current market and consumer trends and forecast the company’s future earnings and market presence. Resultantly, the leadership at Loblaw will leverage such insights and convert it to revenue streams which will boost the company’s net income.

References

Jack Soll, K. M. (2015, May). Outsmart Your Own Biases. Retrieved from Havard Business Review: https://hbr.org/2015/05/outsmart-your-own-biases

Leetaru, L. (2019, August). The Wrong Ways to Strengthen Culture. Retrieved from Havard Business Review: https://hbr.org/2019/07/the-wrong-ways-to-strengthen-culture

Porter, M. (2008). The Five Competitive Forces That shape Strategy. Havard Business Review, pp. 25-38.

Whitehaed, R. Q. (2017). Loblaw in Canada’s Stagnant Grocery Market. Ivey Publishing, pp. 19-30.