Loblaw Cos. Ltd. is losing business to archrival Wal-Mart Canada Corp. even as it invests heavily to lower prices and ensure products get to the shelf on time.
Vicente Trius, the new Loblaw president, acknowledged on Wednesday that the company is losing market share, though he didn’t say to whom, but analysts point to Wal-Mart as a big winner. At the same time, Mr. Trius insisted that Loblaw is on track to draw back customers.
“I’m not going to say we’re not losing – we’re losing share,” Mr. Trius told an analysts’ conference call. But “we’re trending in the right direction.”
Loblaw has been racing to turn around its operations since late 2006 after a botched restructuring left merchandise stuck in warehouses or on trucks while store shelves were often left bare. Since then, it’s been pouring money into upgrading its supply chain and systems while refurbishing outlets, dropping slow-selling items and pumping up its President’s Choice and other private label lines, including Joe Fresh apparel.
Now, under the leadership of Mr. Trius since last summer, it’s focusing on improving store offerings and customer service, spending $40-million in 2012 alone to add staff, particularly in its fresh food sections, while chopping prices. Those expenditures are helping to bruise the bottom line: Loblaw’s profit tumbled more than 22 per cent in its first quarter.
Despite its efforts, the grocer is shedding market share as Wal-Mart accelerates its expansion ahead of the arrival in early 2013 of U.S. discounter Target Corp., which will put pressure on all players. For now, Wal-Mart is especially grabbing business from Loblaw’s fresh fruit, vegetable and meat aisles, said Kenric Tyghe, an analyst at Raymond James.
In the past two years, Wal-Mart has almost doubled its share of the country’s fresh food business, its chief executive officer Shelley Broader told a conference last month. It aims to continue on the same path: In 2012, it will oversee a record expansion in Canada, adding or enlarging 73 stores.
Mr. Trius said on Wednesday that Loblaw is gaining traction in its initiatives despite the tough market. In its first quarter, the number of customers picked up although the value of their purchases on each shopping trip declined slightly; sales volumes were flat from a year earlier.
In its conventional stores, it is applying best practices from its new Maple Leaf Gardens prototype outlet in Toronto in such areas as bakery goods, fruits and vegetables and ethnic and organic offerings, he said. “We know we’re doing the right thing.”
And to make sure, he and his team visit stores unannounced to check them out. “Are they where I want them to be? No. I’d like them to be a lot better. But they’re definitely going in the right direction.” Feedback from customers is positive, he said.
Loblaw’s first-quarter results reflect the need to do better. Its profit fell to $239-million, or 45 cents a share, from $303-million, or 58 cents, a year earlier, while revenue rose to $6.94-billion from $6.87-billion.
The company’s profit was hurt by a number of charges it took in the quarter, including $123-million for investments in information technology and supply chain efforts and $15-million to cover store conversions entailing new labour arrangements.
Its key retail division’s sales grew by 0.8 per cent to $6.8-billion, while crucial same-store sales slipped 0.7 per cent, pinched by one less day of store operations from a year earlier.
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