Loblaw, Canada’s largest food retailer, has faltered recently as Wal-Mart slowly builds its presence north of the border. It’s all change in the company’s boardroom, with Allan Leighton, once vital to the turnaround at Asda in the 1990s, charged with breathing fresh life into another grocer. But, as Dean Best discovers, Loblaw’s strategy has left retail watchers unconvinced.
Once again, questions are being asked about the direction of Loblaw Cos., Canada’s largest grocer.
In terms of sales, Loblaw dominates Canada’s food retail landscape and is double the size of nearest rival Sobeys.
The company, however, is two years into a five-year turnaround plan, instigated after supply chain and warehouse problems left store shelves empty.
The streamlining programme also came amid concerns at the entry of Wal-Mart into Canada’s grocery sector. The US giant moved into Canadian food retailing in 2006 and the steady expansion of its Supercenter network in the country has led to fierce price competition with Loblaw, Sobeys and fellow local rival Metro Inc.
For the last 18 months, three executives have led Loblaw’s bid to revitalise the business: Mark Foote as president and chief merchandising officer; Galen Weston – the son of W. Galen Weston, the chairman of Loblaw parent and Canadian food manufacturer George Weston – as executive chairman; and deputy chairman Allan Leighton, the UK executive, renowned for his role in turning around Asda.
That triumvirate led Loblaw until yesterday (21 April). Despite Loblaw insisting “significant headway” has been made with its turnaround plan, there has been a fresh shake-up at the top table. Foote has left, along with CFO Bill Wells and executive vice president food Pietro Satriano and Leighton has taken the helm and executive responsibility at the business.
Leighton has a reputation as something of a business maverick in the UK, where alongside his role in turning Asda into a company for which Wal-Mart wanted to pay GBP6.7bn (US12bn), he has embarked on breathing fresh life into state-owned postal service Royal Mail.
Nevertheless, some experienced watchers of the Canadian retail landscape, are less than convinced about the latest round of changes at Loblaw.
|Allan Leighton has taken up the reins at Loblaw, Canada’s largest grocer|
David Hartley, a retail analyst at BMO Capital Markets, said the changes mean Loblaw is “not quite on track” with its turnaround. He added: “The changes will likely not provide any confidence to investors that the company will get on track any time soon.”
Outgoing CFO Wells, who has joined pharmaceutical company Biovail, took the unusual step of backing Loblaw’s management when his new role was confirmed. “Loblaw has an outstanding group of people working on executing Loblaw’s turnaround plan, which I am confident will succeed,” Wells insisted.
Such confidence is a scarce commodity in the investor community. Shares in Loblaw dropped 6% yesterday on the news of the management merry-go-round and, according to National Financial Bank analyst Jim Durran, the changes have created some uncertainty around the company’s financial prospects this year. Loblaw saw underlying profits tumble 22% in 2007.
Durran believes that three key factors were behind the changes in the Loblaw boardroom. The company, he argues, has been slow to develop a strategy for its general merchandise range, while sustaining the turnaround at its core food business will need “significant rigour and more aggressive and confident in-store merchandising and marketing”.
For Durran, the changes are a sign that Loblaw’s bid to cut costs – a key plank in its strategy to head off growing competition from Wal-Mart – is faltering. “Foote and Satriano would have been primarily responsible for generating any procurement efficiencies, as part of Loblaw’s efforts to generate some cost savings to at least partially offset the cost of further price reductions. There is a risk that the amount, or timing, of cost savings may not be coming in as Loblaw had expected.”
Of course, with suppliers feeling the pinch from rising commodity costs, securing price cuts will be difficult to achieve, not least when there are changes on the Loblaw management bench. While the company takes time to adjust to its new executive team, the likes of Metro and Sobeys will see pressure on their margins ease.
Nevertheless, Leighton is confident that the new executive team will carry the business forward. “At this crucial juncture, we require more focus and clarity in our leadership structure. These changes will provide this.”
Last year, Leighton told UK newspaper The Guardian that running a company was “the best job in the world, the hardest job in the world, [and] the loneliest job in the world”.
It’s likely he’ll be feeling those emotions as he takes up the reins at Loblaw.