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LOBLAW, 84 YEARS OLD, STILL BIGGEST GROCER BY FAR

BY SUSAN THORNE

Loblaw’s sales topped C$23 billion in 2002, far ahead of the second-biggest food retail chain, Sobeys, which posted sales of C$9.7 billion.

Loblaw Cos., one of Canada’s largest retailers and its leading grocery chain by far, posted C$23 billion ($16.4 billion) in sales last year. And even with the impending arrival of Wal-Mart’s Sam’s Club and with Costco already here, it doesn’t appear that it will be knocked off its pedestal any time soon.

Loblaw was founded in 1919 as a single Toronto grocery store with the then-revolutionary concept of customer self-service. When it was acquired in 1947 by bakery giant George Weston Ltd. (the current owner), the company was already Canada’s largest grocery retailer, and it has continued to expand by swallowing up or driving out most competitors. Though there were 20 sizable grocery chains in Canada in the 1980s, the only other truly national grocery retailer today is Stellarton, Nova Scotia-based Sobeys, which has 1,323 stores, compared with Loblaw’s 10,900. Sobeys’ sales in 2002 amounted to C$9.7 billion, a fraction of Loblaw’s.

Loblaw operates under various banners, store sizes and concepts, including Real Atlantic Superstore and SaveEasy, in the Maritime Provinces (New Brunswick, Nova Scotia and Prince Edward Island); Dominion food stores, Newfoundland; Maxi and Provigo, Québec; and Fortino’s, Loblaws, No Frills, Value Mart and Your Independent Grocer, elsewhere in Canada. In the western provinces, the trademark green and yellow of the large-format Real Canadian Superstore has been a familiar retail destination for 15 years, with about 60 percent of sales coming from nonfood merchandise, including gasoline and liquor.

“Loblaws is a major force and dominant player out here,” said Michael Kehoe, a broker and principal at Fairfield Commercial Real Estate, Calgary, Alberta.

This panoply of formats enables Loblaw to go after different market segments, from discount to bulk sales and the gourmet food shopper, and to change banners as customers’ needs change. The No Frills concept, for example, was developed by replacing smaller, older Loblaws groceries. (In order to have this flexibility, Loblaw prefers to own its store sites.) Over 5,000 Loblaw private-label products cover a variety of shopper profiles. There are bargain-priced Club Packs of nonperishables for bulk purchasers, and money-saving, “no name” generic foods for value-minded customers, while the select President’s Choice label features such fancy fare as marinated steaks and frozen hors d’oeuvres.

Increasingly, Loblaw is stepping outside the traditional grocery product offerings and expanding its market share with more nonfood merchandise and services. One new product initiative announced this year is the planned addition of bargain-priced “dollar store” items at the No Frills and Maxi discount stores.

In Ontario, which commands about 40 percent of Loblaw’s sales, many smaller groceries are being replaced with 120,000-to-140,000-square-foot Loblaws Market superstores, one-stop shopping destinations that are a new phenomenon in most of the communities where they are being developed. In addition to groceries, these hypermarket-style units offer general merchandise such as office supplies, bed and bath products, garden furniture, cosmetics, jewelry and family apparel, from brand-name to discount-priced. The Market concept also features service outlets: photo processing, the Holy Smokes cigar shop, PC Financial (Loblaw’s own banking service, which includes ATM access and its own credit card) and a wine boutique. Loblaw has hired Joseph Mimran, one of the founders of the Club Monaco chain, to design the “everyday household needs offering” home decor line.

The stores are also positioned as community gathering places, including GoodLife Fitness Clubs and facilities for classes and special events.

“They’re like a social laboratory, always trying things out, modifying, making sure the adjacencies are right,” said John O. Winter, president of John Winter Associates, a Toronto retail consulting firm. “Every time you go into one of their stores, you find something new. The newest ones have bands playing, cooking classes — and my daughter has had her birthday party there for the last three years. There are all these things to bring you in. It’s one-stop shopping taken to the ultimate.”

As a result, Winter said, “they’re running away with market share.”

Although the company’s widened product selection has come in for a lot of attention lately, price is also a key consideration for Loblaw, said Geoff Wilson, Loblaw’s vice president of industry and investor relations.

“When we get efficiencies, we try to reinvest to drive prices down wherever possible,” he said. At the same time, top line (as opposed to discount) sales at Loblaw have increased by 6 to 8 percent over the past 10 years, and company shares have yielded over 25 percent in the same period.

The question of pricing is particularly important these days because of the impending entry of Wal-Mart’s Sam’s Club discount outlets into the Canadian market. Wal-Mart expects to open four or five such stores in the Toronto area over the coming year. That decision was sparked by the fact that there is very little competition in the warehouse sector, says Andrew Pelletier, Wal-Mart Canada’s director of corporate affairs. (The only nationwide player is Issaquah, Wash.-based Costco Wholesale, which has 61 Canadian outlets.) Asked about Loblaw, Pelletier responded, “We see everybody as a competitor.”

Loblaw is in a strong position as an established everyday low price retailer that has competed successfully with Costco since the early 1990s, says Winter. But he suggests that it is healthier for Canada’s biggest grocery chain to have some real competition. “The consumer wins that way,” he said. “I think it will be a better market.”

Wilson says he is undaunted by the prospect of the world’s largest retailer playing a larger role in Canada’s food sector.

“We have many, many stores that are next to a Wal-Mart, and we have our Club Pack, which competes week in, week out with Costco,” he said. “Whether it’s food, health and beauty, or pharmacy products, we price everything week to week.” Over 25 percent of Loblaw’s business is discounts, he said, “and we continually try to take costs out to be more efficient and effective merchants.”

Adds Wilson: “Sam’s Club will be just another entry into an already crowded market. We’re not overly concerned, but we are vigilant.”

Loblaw doesn’t have to worry about Wal-Mart importing its Super Wal-Mart format, at least not for the time being.

“We haven’t ruled anything out,” Pelletier said, “but at present we have no plans for supercenters in Canada.”

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