Loblaw Companies Limited

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Loblaw Companies Limited

22 St. Clair Avenue East
Toronto, Ontario M4T 2S8
Canada
Telephone: (416) 922-8500
Fax: (416) 922-7791
Web site:http://www.loblaw.com

Public Company
Incorporated: 1956
Employees: 114,000
Sales: C$20.1 billion (2000 est.)
Stock Exchanges: Toronto
Ticker Symbol: L
NAIC: 445110 Supermarkets and Other Grocery (except Convenience) Stores; 445210 Meat Markets; 445230 Fruit and Vegetable Markets; 452910 Warehouse Clubs and Superstores

Loblaw Companies Limited is Canada’s largest retail and wholesale food retailer, with about 1,000 operations across the country. Founded in 1956, Loblaw focuses on food retailing with the purpose of providing consumers the convenience of one-stop-shopping. The company operates under a number of banners, including Loblaws, No Frills, Maxi, and Zehrs Markets. The company is on the vanguard of private label, also known as generic, brand merchandise. The company’s wholesale business serves nearly 12,000 independent stores in Canada. Loblaw Companies Limited is controlled by George Weston Limited, a multinational food-processing and food-retailing company.

1950s and 1960s: Expansion Through Acquisition

The relationship between Loblaws and its parent company, George Weston Limited, began in 1947, when Garfield Weston purchased 26 percent of Loblaws’ voting stock. George C. Metcalf advised Weston to purchase Loblaws Groceterias, Ontario’s leading food chain. In 1953 Weston acquired a controlling share in Loblaws Groceterias, the namesake company founded by Theodore P. Loblaw, and Metcalf became its president. Loblaw Companies Limited was incorporated in 1956.

Throughout the 1950s and 1960s, Loblaws had a voracious appetite for acquisition. Most notably, the company acquired a controlling interest in the Chicago-based National Tea Co., which made Loblaw Companies Limited the third-largest supermarket company in North America. Most of the C$400 million to purchase the company was borrowed. Piece by piece, Loblaws’ parent company, George Weston Limited, acquired a variety of companies, while operating with almost complete secrecy. Metcalf held back information from not just shareholders, but even executives of the company’s subsidiaries. Often it was difficult to determine whether Loblaws or Weston owned a subsidiary. The media described the Weston-Loblaws conglomerate of hiding in a “veil of accounting obscurity.” Amid such concealment and confusion, financial analysts were hesitant to recommend Loblaws or Weston stock. Metcalf said non-disclosure was a temporary necessity, and in 1966 Weston revealed the breadth of its holdings to the public.

Late 1960s: Disappointing Earnings

The revelation of the company’s vast portfolio coincided with internal difficulties. Growth financed by short-term borrowing had caught up with the company as acquisitions delivered disappointing earnings and interest rates peaked. One of Loblaws’ profit-making techniques had burdened the company with long-term leases that restricted the company’s flexibility. A turning point for Loblaws’ parent company came in 1967. Hoping to centralize Loblaws’ supermarkets with Weston’s supermarkets and baking business (which were competing with each other), Garfield Weston hired an accountant, Keith Dalgish. Rather than streamlining the businesses, Dalgish was forced to focus on financial systems in the face of plummeting sales and profits. Ted Creber became the George Weston Limited president and managing director in 1969, during a time of rising interest rates and labor costs. Through his leadership, the company’s orientation shifted from expansion to profitability. Creber launched a restructuring program that laid the foundation for the next generation of Weston-Loblaws executives.

1970s: Restructuring and Recovery

In the early 1970s, Loblaws was on the brink of bankruptcy. In 1971 Dave Nichol and Richard Currie met while working at the Toronto office of McKinsey, an international-management consulting firm. Nichol and Weston had been roommates at the University of Western Ontario. The three had dinner. Weston offered Currie a job with Loblaws, and in July 1972, Weston, at Currie’s suggestion, hired Nichol. The threesome rolled up their sleeves and reorganized the company. Currie and Nichol renovated stores, started monthly profit-and-loss statements for each store, and most notably, began analyzing their shelf space and highlighting the importance of category profitability.

In 1972 Garfield Weston’s youngest son, 31-year-old Galen Weston, decided to come back to Canada to take over the family food business. He had spent a decade successfully starting and operating a supermarket business in Ireland. During the same year Loblaws hired a design consultant, the Watt Design Group, to help revive its aging stores, which had suffered lost market share through the perception of high prices and poor locations. Watt Design Group developed a “lifestyle retail environment,” which eliminated the stores’ layout and merchandise mix, while the company’s logo and store interiors were redesigned. Through the remodeling process, the company’s communications and identity were integrated. At this time, Loblaws focused on produce, to compete with their rival Dominion, which dominated the Toronto meat market. An expanded selection of produce was moved from the back to the front of stores, and large-scale posters of fruit were installed to entice customers. The produce was watered for freshness, and lighting was improved. A communications program was established to voice Loblaws’ price position, and a focused internal signage program was implemented. In the revamped stores sales doubled, increasing to C$150,000 to C$200,000 a week.

The campaign was a success and Weston turned to Loblaws’ struggling company, the National Tea Co., which had siphoned away profits. In 1970 the chain was the sixth largest in the United States, but by 1973 it had dropped to eleventh and had posted a C$35 million loss. Galen addressed the disaster personally by renting a house in Chicago, where he and operations heavyweight Currie worked to set affairs in order. Galen Weston also pared down the organizational structure of George Weston Limited’s food operations, such as Kelly Douglas, to streamline the territorial overlap among the parent company’s retail holdings and stem the inefficient use of assets. In the fall of 1976 having spent C$65 million to revive the stores, Loblaws sold 63 National Tea stores to A&P. The divestment of National Tea’s assets continued gradually as they became marketable, finishing in 1995 with remaining assets in St. Louis and New Orleans. The net proceeds of the withdrawal exceeded C$1 billion.

That year Loblaws lost C$49 million on sales of C$3billion. Frustrated, Galen Weston appointed Richard J. Currie to the post of president of Loblaws. Currie set an objective of 20 percent return on capital. At this stage the management trio that had saved Loblaws shifted from hands-on to more advisory and planning-oriented roles. Weston moved on to run parent company George Weston Limited after Ted Creber resigned as president. Nichol managed 140 supermarkets as head of Loblaws’ Ontario store operations; while as president of Loblaw Companies Limited, Currie became Nichol’s supervisor. In 1980, sales soared to C$5 billion with profits of C$46 million. With the company’s streamlined organizational chart in place and new promise, Galen Weston proved that although 44 percent publicly owned, at heart George Weston Limited was still a family business.

Before long Nichol established himself as a visionary merchant. Two years into his job as head of the Ontario stores, he achieved his first high-profile product development success with the March 1978 launch of No Name, a line of generic products in bright-yellow packaging with a plain typeface. The inspiration came from Le Carrefour, a French supermarket giant whose Produits Libres (loosely translated as “free products,” meaning without marketing or flashy packaging) proved successful. Loblaws’ in-store communications simply conveyed that each product was offered at the lowest price possible, teaching consumers to equate “yellow” with “savings.” Around this time the company also launched its new discount store model, the No Frills supermarket, where only Loblaws’ private-label products and the top national brands were sold. Within four months of the No Name launch, the line had captured nearly ten percent of supermarket sales across the country.

1980s: Revolutionizing Retailing

Having pioneered the use of private labels with the 1970s launch of No Name in the 1980s, Nichol revolutionized food retailing. At Loblaws, Nichol was beginning to focus exclusively on developing house-brand products. In 1981, Loblaw sold more than 300 No Name products. The impact was huge. For example, before Loblaws launched its own generic brand of diapers, Pampers had an 85 percent share of Loblaws’ sales. That dropped to 18 percent after Loblaws launched its private-label business.

Generic-brand products can be sold cheaply because they save on advertising and marketing expenses. To this point, Nichols fired Loblaws’ advertising agency on the premise that private label saves C$2 million a year. With that money, he built a company television studio and became an advertising maven, with Loblaws becoming one of the first companies to embrace infomercials. Unlike most supermarket industry executives, who generally remain anonymous, Nichol became a household name as the face of Loblaws—responsible for its financial turnaround, Nichol emerged as a company icon. He even wrote his own commercials. Loblaws also used celebrity spokes-people in its advertising, including William Shatner, a Canadian actor who was well known for his role in the television series Star Trek.

Company Perspectives:

We are a food store first, offering a broad assortment of grocery products, superior perishables, and an ever-evolving and increasing assortment of everyday household nonfood products.

By 1983 Nichol was developing the first President’s Choice products, inspired by the upscale St. Michael’s house brand created by United Kingdom retailer Marks & Spencer, PLC. Loblaws’ President’s Choice brand promised to be better than higher-priced national brands. The packaging featured an upscale design with striking photography that illustrated product benefits. In 1983 inspired by the Los Angeles-based chain Trader Joe’s, Nichol launched a newsletter featuring new products and recipes called Insider’s Report, which by 1986 reached 5 million readers—more than any other Canadian food publication. In 1984 Currie moved Nichol out of store operations and into full-time product development work as president of Loblaws International Merchants.

In this role Nichol flourished as Canada’s most famous “food connoisseur” and a marketing wizard. He traveled the world to bring exotic products back to Loblaws, from Italy to shop for espresso to West Germany for sausage. For instance, after he tasted satay sauce at a restaurant in Bali, he put his staff to work replicating and perfecting the sauce in the company’s test kitchen. The result, Memories of Szechwan Peanut Sauce & Dressing, has outsold ketchup in some Loblaw stores. Nichol borrowed the “Memories of’ slogan, used to name many subsequent sauces, from a restaurant in London called Memories of China. Pundits credited him with the cleverest trend-spotting for his successes in satisfying baby boomers’ gastronomic tastes. In addition, he launched The Decadent Chocolate Chip Cookie, which became Canada’s most craved cookie. Industry analysts said that amid the growing gap between wealthy shoppers hot for novelty and price-conscious shoppers hungry for value, Nichol helped Loblaws garner brand loyalty from both. Loblaw International Merchants was Nichol’s playground and home base for creative new product development. His tenth anniversary cookbook, which included recipes with President’s Choice products, was a best-seller.

By 1984 the chain had increased sales by 72 percent—while net earnings jumped by 225 percent. In June 1989 with perfect trend-hunting pitch, Loblaws launched a Green brand of environmentally friendly products that included foam plates, dishwasher detergent, and motor oil. Sales for the Green goods doubled the company’s projections. President’s Choice gave Loblaws huge marketing muscle because the line transformed Loblaws’ stores from traditional retail outlets into something similar to specialty food shops.

Nichol had made Loblaws a private-label powerhouse. In ten years Nichol developed more than 1,700 unique products for the firm. Total private-label sales for Loblaws, including the upscale President’s Choice line and its lower price-point generic sibling, the No Name line, were running about C$1.5 billion per year in Canada. More revealing, one out of every three grocery products that Loblaws’ shoppers took home were private labels, and in two of the company’s chains, private-label sales were pushing 40 percent. These achievements were notable for the North American market, where national brands had long prevailed.

Meanwhile, the mid-1980s found Canada’s highly competitive yearly C$32.5 billion grocery business thinking big. In 1986 Loblaws was on the vanguard of the mega-store movement. The company’s definition of a mega-store was 80,000 square feet. Traditionally, a good-sized conventional supermarket is 35,000 to 40,000 square feet. In the Toronto metro area, Loblaws had one mega-store in Pickering and one in the works in Burlington. The company acknowledged that the concept entailed some risk (given that it was spending more money on fewer locations), if the site should turn out to be unprofitable. Since the competing Oshawa Group decided to stick with the traditional supermarket format, Loblaws spent C$370 million in 1987 to expand the chain thorough internal building, rather than acquisitions.

End of the Millennium: The Rise of Superstore Shopping

The 1990s saw transition on a number of fronts. After waging war on manufacturers through his private-label programs, Nichol left the company in 1994. He joined Cott Corporation, a Loblaws supplier that revolutionized the market in 1991 when it launched President’s Choice Cola in Canada. Loblaws’ private label placed Cott on the map and contributed to the Canadian Coca-Cola Limited’s C$45 million loss one year later. Nichol’s departure raised a question mark about competition posed by his new venture, which had a private-label marketing arm. In the wake of Nichol’s departure, Currie merged Intersave, Loblaws’ sourcing and purchasing division, with Loblaws International Merchants, Nichol’s old department, and created Loblaws Brands Limited to carry on the private-label campaign. By the time Nichol decided to leave, he had shepherded President’s Choice into 12 grocery chains in the United States.

Wal-Mart’s 1994 arrival in Canada flashed a warning signal for all retailers. In the mid-1990s, Loblaws was busy planning its Canadian expansion amid record sales and earnings. Loblaws had changed from a traditional supermarket chain to a multifaceted food and general merchandise retailer, with a niche of providing a variety of perishable and nonperishable goods. Competition was mounting from specialty fruit and vegetable stores, shopping clubs, and mass-market retail stores. “We’re all fighting for our share of the stomach,” said Loblaws’ vice-president David Williams.

Key Dates:

1953:: George Weston Limited acquires controlling interest in Loblaw. George C. Metcalf becomes president.
1956:: Loblaw Companies Limited is incorporated.
1969:: Ted Creber becomes president.
1976:: Richard J. Currie becomes president.
1978:: David Nichol launches No Name line of generic products.
1983:: Loblaws launches President’s Choice premium house brand.
1989:: Loblaws launches a Green brand of environmentally friendly products.
1994:: Wal-Mart arrives in Canada.
1998:: Merger with Provigo, Inc. for about C$1.74 billion.
2000:: John A. Lederer becomes president.

In Patricia Chisholm’s article in the November 9, 1998 issue of Maclean’s, one shopper, a new mother, criticized the massive size of Loblaws by saying, “I went to the big new Loblaws to shop recently and it took me an hour and a half,” she said. “I prefer a smaller place where I can be in and out in five minutes, even if it costs more.” The new concept, Real Canadian Superstores, started their rollout in late 2000, bringing the largest operations to 160,000 square feet with increased general merchandise lines while keeping food offerings. The debate raged on in Randy Boswell’s article in the February 4, 2001 edition of The Ottawa Citizen, in which a new 97,000-square-foot store that opened in November 2000 was shown as emblematic of the battle between quaint neighborhood business and big-box behemoths. Loblaws’ multi-service outlets, complete with a pharmacy, wine department, dry cleaning, a President’s Choice Bank and even fitness centers, became the company’s answer to the threat of Wal-Mart. With the Bentonville, Arkansas category killer on the scene, the North American retail market was treacherous. The end of the old-style Loblaws Groceterias and the rise of the one-stop-shopping superstores were sparked by the March 1988 grand opening of a 126,000-square-foot Wal-Mart Supercenter in Washington, Missouri, which leveled its competitors, including a Loblaws-owned National Supermarket. Loblaws has cited the threat of Wal-Mart and other alternative food channels in its negotiations with unions, suggesting that nonunion competitors enjoy lower costs, which can be passed on to customers. The year 2000 brought labor negotiations within the company, resulting in four strikes, all of which were settled.

In November 1998 in a friendly merger valued at about C$1.74 billion Loblaws acquired Provigo, Inc. of Montreal, which had been attractive because Loblaws had a limited presence in Quebec. The Caisse de depot et placement du Quebéc (the massive provincial fund manager), Provigo’s largest shareholder with a 35 percent stake, had squashed two previous attempts by outsiders to gain market share in Quebec’s grocery market. In the most well-known instance, Loblaws made a play in 1989 for Steinberg, the once-prominent but then declining Quebec chain. Steinberg was led into bankruptcy by Michel Gauder, who had been bankrolled by the Caisse in a C$1.3 billion purchase. With the Provigo deal, the largest acquisition in the company’s history, Loblaws achieved a strong foothold in Quebec at a good price. Afraid of industry consolidation, competitor Metro-Richelieu condemned the merger when it learned about it, right after the announcement of a merger between Toronto’s Oshawa Group and Empire Company’s Nova Scotiabased Sobeys chain. In the aftermath of the Provigo deal, antitrust regulators forced Loblaws to sell its Loeb chain to Metro-Richelieu to prevent 75 percent control of the local market. In Brenda Branswell’s article in the March 27, 2000 issue of Maclean’s, a shopper wondered if the negative reaction against Loblaws might be nationalistic, provincial, or parochial.

In June 2000 with C$12.9 billion in sales, and 1,116 stores, Loblaws received designation from the trade journal MMR as one of the Top 10 world’s best mass-market retailers. The criteria included size, sustained sales and earnings growth, global impact, marketing excitement, ambitiously realized expansion plans, and proven success over the long term. Loblaws achieved note for its global reputation as a leader in innovation, particularly in the area of retail technology. Scanners introduced in the 1980s to speed customers through checkouts gave stores the power to analyze the profitability of shelf space to the square inch. This knowledge gave muscle to Nichol’s claim that President’s Choice, priced below national brands, brought retailers bigger returns.

Since 1998 the President’s Choice (PC) label has moved beyond its roots as a product-oriented brand to embrace financial services. The President’s Choice Bank, a new subsidiary of Loblaws, developed the PC Financial MasterCard, a no-annual-fee credit card that in March 2001 was launched in British Columbia. The card has a loyalty program through which customers can earn PC points on purchases that are redeemable for free groceries in Loblaw Companies Limited stores. Closer to its roots, in 2001, Loblaws introduced more than 200 President’s Choice certified organic products within fresh produce, meat, and grocery items.

In 2000, Loblaw Companies Limited surpassed the C$20 billion sales mark for the first time ever. At the end of the year, the company announced that Richard J. Currie stepped down as president of Loblaw Companies after almost 25 years as president. John A. Lederer was assuming the lead of the management team. At that time, the company was planning to continue its substantial capital investment program, with new retail outlets across Canada; inventory in warehouses and distribution networks and systems; and maintain its reputation for innovation and low-cost operations. Year 2000 sales increased C$1.3 billion, or 7 percent, to C$20.1 billion with healthy growth. In February 2001, George Weston Limited became North America’s second biggest bakery with a C$2.7 billion acquisition of Bestfoods Baking Company, which was spun off by the Unilever Group. Weston, the maker of Wonder Bread, outbid Sara Lee Corporation of Chicago. In the spring of 2000, Weston was considering decreasing its 63 percent majority interest in Loblaws by 5 percent to focus more on its baking business.

Principal Subsidiaries

Atlantic Wholesalers Ltd., Sackville, New Brunswick; Fortino’s Supermarket Ltd., Hamilton, Ontario; Kelly, Douglas & Company, Limited, Calgary, Alberta; Loblaws Brands Limited; Loblaws Properties Limited, Ontario; Loblaws Quebec Limited; Loblaws, Inc.; Loblaws Supermarkets Limited, Toronto, Ontario; National Grocers Co. Ltd., Toronto, Ontario; President’s Choice Bank; Westfair Foods Ltd., Calgary, Alberta; Zehr’s Markets, Inc., Cambridge, Ontario.