Loblaw Strategy Analysis in Response to Walmart's Entry

Comparing Loblaw and Walmart Corporate Strategies

Loblaw was the largest supermarket in Canada, with a market share of nearly 35% in 2005 and 609 corporate and 427 franchised stores throughout every province in the country. It was also the number one seller of branded consumer packaged goods by sales in Canada.

The corporate strategy of Loblaw is built upon the creation of private labels and the offering of a range of products under its own brand. The company has consolidated its distribution centers — merging many of them to reduce costs — and closed stores that were unprofitable. Loblaw seeks to fully capitalize on its fleet and workforce. One strategy that has proved particularly fruitful is its uniform pricing policy, which establishes standard pricing across all stores in Canada. The standardization of store designs and renegotiated union contracts have further helped the company reduce overhead costs and streamline business processes.

A company's corporate or business strategy encompasses what it does in the long term as well as in daily operations to meet short- and long-term goals and objectives. Vision and mission statements serve as the principal guidelines for forming corporate strategies. In the case of Loblaw, the company's mission is to become the best food and home retailer in Canada by meeting and exceeding customer expectations and by providing innovative products at prices that are both affordable and competitive.

Leveraging scale and maintaining consistent execution toward profitable growth — with a sustained focus on customers, stores, and products — are the means by which Loblaw intends to meet its corporate goals. The company embarked on a three-to-five-year strategy in 2007 to simplify, innovate, and grow, which remains its overarching corporate strategy.

However, Loblaw faces tough competition from one of the world's largest retail companies — U.S.-based Walmart. The global retail and general merchandise field is dominated by the one-stop shopping concept at Walmart department stores. Walmart's known business strategy is to run successful and profitable superstores, hypermarkets, and chain stores in the U.S. The company offers a very large variety of products, allowing customers to purchase nearly everything they need in a single visit. Walmart's pricing strategy is also customer-centric, with a focus on quality and affordability. Loblaw was directly threatened by Walmart's entry into the Canadian retail space, which prompted the company to initiate the Real Canadian Superstore format as a strategic move in Ontario, with the aim of protecting and increasing its market share and dominance in the Canadian retail industry.

Loblaw also attempted to transform its stores through the introduction of the Real Canadian Superstore concept in 2005, well before Walmart formally entered the Canadian grocery market. Since Walmart's entry, Loblaw's strategy has been driven by the ambition to drive down costs by gaining operational and scale efficiencies, while also creating value-added differentiation in its products and stores — for example, through the promotion of its President's Choice brand and various other private labels. Loblaw also initiated plans to make its stores more customer-centric and comparable to Walmart's superstores by adopting a multi-banner and multi-format approach.

In comparing the business strategies of Loblaw and Walmart, Loblaw has sought to compete in areas where Walmart is known to excel — namely, private labels and store reorientation — while simultaneously increasing profitability through operational efficiency and scale.

PESTEL Analysis for Loblaw

Political: Loblaw operates in a very stable political environment, and the laws and regulations governing the retail industry in Canada are well developed. Political stability has enabled the company to formulate long-term strategies with confidence. In Canada, this stability has created a less fragmented, more competitive, and multicultural environment for retail business, meaning that a few national brands dominate the market — and Loblaw is the leader among them. The grocery sector in Canada is well developed and maintains high standards, thanks to stable laws and regulations that promote competition.

Economic: Following the 2008 global financial crisis, which affected Canada as well, the economies of both the U.S. and Canada have been recovering. This has placed more disposable income in consumers' hands, reducing the urgency of price wars for Loblaw. With an established brand, quality products, and a fair pricing strategy, the company is well positioned to compete with rivals including Walmart. During periods of solid economic growth, pricing strategy becomes comparatively less critical for customers. Economic expansion also benefits Loblaw's strategy of gaining value from size and scale.

Social: One notable trend in Canadian cultural values is the continued growth of suburban communities, with people increasingly moving out of cities. This demographic shift has a direct impact on Loblaw as it seeks to establish more stores in areas with greater population concentrations. This trend was evident in the company's decisions to close unprofitable urban stores and open new ones in strategically located suburban areas.

Technological: Retail chains are embracing various technologies to improve the customer shopping experience. Customer-centric business processes and strategies are vital for retail companies seeking to grow market share and enhance profits. Loblaw has adopted technology with a focus on delivering innovative products and services. Modern technology also enables retailers to gather insights into customer preferences, buying habits, and choice — all of which inform marketing strategies and product offerings. Given the massive scale of operations at companies like Loblaw and Walmart, modern technology is also essential for tracking inventory and restocking stores, as well as managing complex supply chains. For Loblaw, staying current with the latest technologies and adopting them before competitors do is crucial.

Environmental: With rising concern for ethically sourced products and greener business processes, demand for environmentally friendly products — even within retail stores — is growing. As a result, most retail companies now offer organic food and employ energy-saving, environment-friendly technologies in their operations.

Legal: Given Canada's well-established regulatory and legal framework for retail trading and business, Loblaw has not been significantly involved in legal disputes, aside from occasional tensions with trade unions.