Canadian supers

MMR, Dec 15, 2008

TORONTO -- Addressing a financial audience at Scotia Capital's recent analyst conference, executives from Canada's three largest grocery chains were remarkably sanguine about what the future holds for their companies.

Loblaw Cos. chief operating officer Dalton Phillips began by dispelling seven myths that he knew had been circulating about the progress of the company's "transformation" program.

First, the pace of change Loblaws has adopted is by no means too fast; in fact, it was late given the shift in the market, he asserted. Moreover, general merchandise is not a problem area. Traditional supermarket, GM departments and apparel were doing well, he maintained. At the same time, the company is deemphasizing its focus on such departments as home entertainment, sporting goods and toys.

In addition, store overcapacity is not a significant problem, according to Phillips. There have been space issues in only about 30 out of more than 1,000 stores, and only about 10 have needed sizable space reduction, he noted.

Loblaws' supply chain performance is now comparable to that of competitors, thanks to new facilities with state-of-the-art equipment and proven systems. added Phillips.

On the information systems front insufficient data is not an issue, he said. Loblaws has all the data it needs; it has just been hard to get at. he explained. That hurdle is being eliminated with the introduction of well-tested, nonproprietary data management solutions.

Phillips acknowledged that employee turnover is high--Loblaws has had to process some 40,000 new hires a year--but the company's experience has been better than industry norms. In any case, he noted, programs to improve retention and job satisfaction are working.

And Loblaws is not "done with lowering prices," Phillips said. Targeted and systematic price adjustments are a way of life for the company, he pointed out.

Plans for the future are being rolled out. The upgrade of the conventional stores in Ontario is on track, with 20 due to be completed before the year's end.

In Loblaws' western markets 25 superstores are being refurbished, and 20 Extra Food banners are being converted to No Frills. Also, 20 more No Frills units will be introduced within two years.

The concepts developed and applied in the Ontario stores--including new fresh departments, new uniforms and new signage--will be rolled out across the chain. The enhanced merchandising program, with 85% controlled from headquarters and 15% controlled locally, is up and running, Phillips said.

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At Metro Inc. the economic downturn is not causing customers to make radical changes in their spending patterns, according to Eric La Fleche, the company's chief executive officer.

Some of the lift that prepared meals and other ready-to-eat offerings represent a shift away from restaurant spending. The success that Metro's new private labels, Selection and Irresistible, are having could be partially due to the economy, but it is also attributable to the value, quality and novelty the brands represent, La Fleche said.

The value available in the company's discount operations, Super C in Quebec and Food Basics in Ontario, will be pivotal in the downturn, he added.

Metro's major current initiative is the conversion of its Ontario conventional supermarkets--currently operating under the Dominion, A&P, The Barn and Loebs banners--to the Metro banner now used in Quebec. The conversion started in September, with five to seven stores being converted each week.

Renaming of the Dominion and A&P stores will be completed by the end of this year, and The Barn and Loeb conversions are expected to be wrapped up in early 2009, according to La Fleche.

In Ontario the Food Basics discount banner is being retained. These stores have recently been revitalized thanks to new operations leadership, cleaned-up stores, good execution, better sales circulars and point-of-sale material, and more assortments in grocery, he said. The experiment with textile and dollar aisles has been discontinued.

The backbone of the company in Quebec is the chain of franchised Metro stores. According to La Fleche, the licensees' close connection with their customers gives them a competitive edge in the marketplace.

One of the new Metro Plus stores, recently opened in downtown Montreal near McGill University, is proving its worth in serving the nearby office worker and student populations, La Fleche pointed out.

At just 35,000 square feet, the format is smaller than the conventional store, but it is attracting excellent walk-in business with its on-site kitchen and emphasis on ready-to-eat meals, sushi and sandwich bars along with large fresh departments with serviced meat, fish, bakery and desserts.

Having rationalized its information systems, Metro is now working hard on its private label program, La Fleche noted. The current 1,500 items under the two labels mentioned above will grow to 3,500 by the end of 2009.

With Metro holding the No. 2 market-share position in Ontario and Quebec, its executives are often asked if they aim to expand east or west, La Fleche said. Given its strong balance sheet and steady profitability, the company would welcome the right opportunity if it came along but is not interested in attempting greenfield, store-by-store expansion in the Atlantic region or western Canada, he explained. Unless an opportunity arises, Metro will be content to stay with its program of steady systemic growth and constantly honing of its already excellent execution, he said.