Lablow Companies: Preparing for Wal-Mart Super Centers - Case Study Example

Running Head: Lablow Companies: Preparing for Wal-mart super centers. Environmental analysis: By 2006, Canadian super market industry was a whooping73 billion dollar industry. Grocery sales had increased by 2.49 % in 2006 compared to 2005. However, the relative rate of growth compared to previous year was still less. This business in Canada was less fragmented, competitive and had been taken over by companies which were stronger on a national level. Loblaw had its biggest market in Ontario. Canada is a politically stable country so there were no issues on the political front. Its economy was growing which opened prospects for future. The consumer market was also growing with more immigrants pouring in the country from all over the world. Internally, the company had undergone major managerial structural changes. Most of the big wigs had been replaced and new people had been employed. Porter’s Five Forces: Porter’s five force model can be used to assess an organization’s strategy. The following factors need to be taken into account for this analysis: Competitive Rivalry: Loblaw’s biggest competitor in the market was Wal-Mart. Wal-Mart had expanded rapidly in Canada. Sobeys and Montreal based Metro were also two other giants in the superstore industry. Threat of substitutes: The threat of substitutes is not huge because Loblaw boasted of one of the biggest super centers in Canada. Substitutes could barely match up to stores equivalent to 23 football grounds. Threat of buying power of buyers: The buying power of buyers was immense. They could easily shift bases to Wal-Mart which boasted of rock bottom prices. This is why Loblaw had to be at cut throat competition. Threat of bargaining power of supplier The supplier bargaining power wasn’t much because Loblaw commanded a strong name in the industry. It was the leading super store retailer by then. SWOT Analysis Strengths: Making high quality retailer branded products gave them a competitive edge over others in the industry. It owned most of its real estate and other than traditional grocery services; it was also offering financial services. It was the largest wholesale food distributor in Canada. Discount segment of the company was its fastest growing segment. They had a decade long experience In Real Canada’s super store concept. Weaknesses Labor costs were relatively high. They wanted to bring the costs down. Time taken for each delivery was comparatively higher. The use and dependency on information technology wasn’t much. Conventional Shoppers found it difficult to navigate through Real Canada Super stores because of their gigantic size. Consumers were unaware of deep discount pricing. Opportunities: Costs could be reduced by reorganization of their supply chain as at the moment everything is being handled haphazardly. Expansion opportunities exist in United States. Threat Wal-Mart’s expansion and everyday low pricing (EDLP) proved to be the biggest threat of for Lablow. It was planning to launch 500 in-house brands to compete with Lablow’s premier private label brand, President’s Choice. Competitor Profiling Wal-Mart: Wal-Mart began its operations in Canada in 1994. In 2006 Wal-Mart entered the food retailing industry by opening its first two super centers in Ancester and London. The existing stores were expanded to a full line of groceries. Analysts expected Wal-Mart to continue growing and expanding in Canada. Moreover, Wal-Mart had moved from general merchandising to groceries in United States too. It was a major success there. A lot of independent grocery stores were forced to go bankrupt because they were unable to match up to the rock bottom prices that Wal Mart offered and the influence it commanded on the suppliers. By 2007, Wal-Mart was the world largest grocery retailer. Wal-mart’s success can be attributed to various factors. One of its biggest strengths was its dependency on technology and efficient use of information systems. It was using Electronic Data Change Information System. This technology allowed the company to monitor inventory levels and status of purchase orders on daily basis. The lead times were less and they could squeeze margins by ensuring that inventory was kept at optimal level at all times. Wal-mart shared its inventory and purchase orders related information with all its suppliers, distribution centers and stores. This kind of information sharing allowed Wal Mart to put the responsibility of inventory management on its suppliers. To ensure efficient delivery of merchandise, Wal-Mart ensured that its centers were no further than a day’s drive from the stores. The numbers of SKUs per product category were less, which meant that the assortment offered by Wal-Mart was broad but shallow. Their perishable goods were found in a separate section in the super centers called The Fresh Center and non perishable goods in a separate section. They offered the biggest variety in terms of both perishable and non perishable goods. Wal-Mart’s core EDLP strategy made it the market leader in this industry and posed a huge threat on others who had already ventured here or were planning to enter. Generic Strategies Lablow’s strategy was central to three core principles. They were to “simplify, innovate and grow”. Given the current status of the business, they were looking to make it more consumers focused, cost effective and agile. The focus would be on long term growth for its stake holders. The business is in dire straits. The consumers are dissatisfied at the moment with the product assortment at Lablow’s, their quality of service and delivery. After a lot of deliberation, the top management has decided to revamp their strategy and go for intense cost cutting, consolidation of their supply chain and automation of their process. The strategy adopted is thus intended strategy. An intended strategy is made by the top management after a lot of rationale thinking and introspection. Developing Creative Options There are various creative options that Lablow can consider. After deliberation and thinking, its top management came up with some of the following options: 1. Clear out excess inventory and improve stocking so that neither merchandise nor grocery becomes out dated. Everything is fresh as before. 2. Inventory levels need to be managed at all times at the distribution centers and at the stores. 3. They could continue offering their premium private brands, cut down on national brands, and eliminate redundant sizes and ineffective promotions. 4. They need to clearly distinguish between the smaller superstores and the larger Real Canadian Stores to avoid any brand cannibalization. 5. Bring down the prices at Real Canada Super Stores because the customers were unhappy with the heavy prices at Lablow’s. Stake Holder Analysis: It was speculated that Weston family would sell their controlling stake in Loblaw Companies Limited. However, these speculations were refuted by Galen Sr. He did not deny the need to divest some of the weak asses. He said his experience in business tells him that only those assets should be kept in the business which promise future returns, those that don’t need to be wiped away Gap analysis: determine gap between capabilities required and current requirements They need to invest in information technology to efficiently manage their inventory but do not have the required expertise to handle this or to suggest them how to go about it. The stores are huge. They have enough space with them but they don’t know how to make their product assortment attractive, how to retain their customers and how to satisfy them. The prices incurred due to inefficient supply chain and delivery delays are heavy which cuts down on profit margins. Case Questions: Qs -1) It won’t be a good idea to expand further for Loblaw. This is because they are running in losses at the moment and need to sustain their business first before expanding it any further. The case says that the structural weakness of their business had severely impacted the profitability of Loblaw’s business. Both operating margins and revenues had severely declined. The customers were disgruntled and their operations were not efficiently managed. Thus, it will be wiser to sustain the current operations first before expanding any further. Qs-2) Management at Lablow’s is hierarchical in which the top management takes the most crucial decisions. Labor costs were higher than average market rates due to contracts signed. Lablow’s core competency lay in their premium private in store brands. They had become very popular with the masses. The private label gave Lablow a distinct edge over other competitor brands and helped it become a multibillion dollar industry. Qs-3) Competitors of Lablow’s are: 1. Metro Inc 2. Sabeys 3. Wal-mart Metro Inc’s and Sabeys’ operations were very proficient compared to Lablow’s’. They had positioned themselves as market leaders in Fresh Food category in their bid to outclass Lablow’s and Wal-mart. Wal-mart was expanding very rapidly in Canada. Its core competency was in its Every Day Low Pricing Strategy which was very difficult to beat. Moreover, the assortment of goods at Wal-mart was broad. Their fresh food and non-perishable goods sections were separated and each carried a huge variety of goods. Qs-4) From the strategies discussed in the case, I think the following would be very crucial in helping Lablow’s come out of its current crisis: 1) Implementation of Information Technology at Lablow: This will consolidate the supply chain, make transactions fasters and delivery efficient. However, the initial investment would be heavy and once the strategy is in place, change management will be another task. 2) Uniform Pricing Strategy at Real Canadian Super Stores: This will take care of major consumer complaints against Lablow’s. They insist that the prices at Lablow’s’ are high. With this strategy the prices can be easily brought down. 3.) Bring distribution centers closer to Stores to reduce delivery times and to match with Wal-Mart’s success in their efficient delivery systems. References: L, Burgeois. Strategy and Environment: A conceptual study. 1985. Porter. Competitive Strategy. NY: NY Press, 1990. Simpson. Business Studies. London: Cambridge University Press, 2002. Read More