Evaluate Loblaws’ current strategy, with particular reference to the G·R·E·E·N line.

Question

What will be an ideal response?

Answer 1

The supermarket business in Canada is a highly competitive, mature market where profit margins are razor thin (Loblaws’ net earnings were 0.9 percent of sales in 1989) and each week firms such as Loblaws fight to get consumers into their stores. The battle has led to rationalization of the industry (e.g., mergers, closings) as each supermarket chain attempts to carve out a larger share at the expense of its competitors.
One way to get students to appreciate and understand the situation is to ask, “Why does a consumer decide to shop at Supermarket A or B for groceries?” The typical reasons provided are location (convenience), weekly specials, prices, specific product categories (meat, vegetables, bakery), cleanliness, friendly staff, and other services (e.g., cheque cashing, post office). The instructor may wish to get a rough rank ordering of these in terms of importance. Students may differ on the rank orderings, which is quite reasonable, as these differences would reflect the segments that exist in the market.
Using this list of consumer preferences as a basis, the students can then be asked to evaluate Loblaws’ strategy. This discussion should elicit some of the following points:
• Loblaws is obviously concerned about location as illustrated by Exhibit 2 in the case. In a given year, Loblaws “changes” the location of about 20 percent of its stores (e.g., in 1989 Loblaws opened 55 stores and closed 18 stores out of a total of 334).
• Loblaws is increasing the average store size (Exhibit 2), particularly the number of superstores in the chain. As noted in the case, Loblaws saw superstores as the “wave of the future.” Superstores are designed to appeal to consumers interested in the convenience of “one-stop shopping” and lower prices.
• Loblaws’ corporate brand strategy is designed to build brand/store loyalty by offering a greater choice of products/brands than other stores can provide. Some time should be spent on the importance and impact of
Loblaws’ corporate branding. The discussion should reflect on the reasons why consumers shop at a particular store (as discussed above) and how salient Loblaws’ brands are with respect to the store choice decision.
A number of experts (e.g., financial analysts, marketing consultants) feel that Loblaws’ corporate brand strategy is very innovative and offers Loblaws a distinct, sustainable competitive advantage in the marketplace. At a minimum, this strategy allows Loblaws to take greater control and bargaining power in the distribution channel. By offering brands (e.g., President’s Choice) that compete directly with national brands, Loblaws is shifting the balance of power in its favor. In particular, the corporate brands allow Loblaws to achieve greater margins on specific product lines.
• Loblaws’ “green” strategy is designed to create another differential advantage and position Loblaws as the company that cares about the environment. Again, this strategy should be discussed in the context of consumers’ reasons for store choice, specifically, is Loblaws likely to attract consumers to its stores because it offers “green” products? The evidence provided in the case suggests that there is a growing interest by consumers in the “green” movement, and Loblaws is attempting to create a new point of differentiation by appealing to this “green” segment. At issue is whether this translates into people coming to Loblaws because the store offers “green” products as opposed to the other store choice reasons discussed earlier. It would be appropriate to discuss segmentation (the size of the environmentally concerned group that would be attracted), the level of commitment of these consumers, and whether Loblaws’ efforts will attract them to the store.
• As a final point, Loblaws is regarded as one of the more innovative retailers in Canada. Much of the credit is given to David Nichol, who was responsible for the introduction of the corporate brands, the development of the Insider’s Report, and the marketing strategy for these corporate brands.