Loblaw Companies Limited

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Loblaw Companies Limited

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Executive Summary

Loblaw Companies Limited is the leading food and pharmaceutical family-owned company in Canada. In 2013, the company underwent a major change to attain its objective of “Live Life Well” campaign. It acquired Shoppers Drug Mart Corporation, Canada’s largest pharmaceutical company, at a $12.4 billion to steer clear of the intensifying competition in the food and pharmacy industries. This research paper explores the company’s performance prior to the merger, immediately after, and the causes of its change.

Introduction

Organizational change is the manner in which an organization modifies its structure, strategies, and operations as well as corporate culture to effect change within the organization and the impact of these changes on the company (Kotter, 2012). Current modification in the chosen company is to be discussed in this paper using the Carnegie School theory of organizational change. The method was developed in the late 50s and early 1960s and was focused on studying the sources of stabilization and change in an organization (Kotter, 2012). The contributions that are given prominence in the Carnegie view include failure induced change, routinization of activities in an organization, and the model for organizational learning.

Company Overview

Loblaw Companies Limited is one of Canada’s leading food and pharmaceutical companies that runs its operations via retail, financial, and choice properties segments (Loblaw Companies Limited, 2015). Loblaw’s retail division comprises franchise-owned and corporate retail drug stores including in-store pharmacies and food outlets (Loblaw Companies Limited, 2015). The financial division offers credit card facilities, insurance brokerage services, loyalty programs, personal banking, telecommunication services, and other banking facilities including gift cards. The Choice Properties sector, on the other hand, acquires, leases, and develops commercial and retail real estate properties across the country. 

Loblaw, which was started by Justin Cork and T.P. Loblaw in 1919 in Toronto, was the first to introduce a self-serve policy (Loblaw Companies Limited, 2015). The corporation has undergone significant growth and transformations over the years and has employed various marketing and management strategies to remain one of Canada’s top companies in the food and pharmaceutical industries.

Loblaw’s management comprises of its long-serving President and Executive Chairman, Galen Weston and Michael Motz, the President of Shoppers Drug Mart (Loblaw Companies Limited, 2015). While Glen Weston has a wealth of experience in executive management, he helped restructure Loblaw when it was on the verge of bankruptcy by strategically closing shops in many outlets, expanding store selections through mergers and acquisitions, and consolidating operations. Michael Motz has more than 10 years of experience at Shoppers where he successfully introduced grocery strategy in various locations.

Loblaw Companies Limited before the Change

Prior to 2013, Loblaw was operating solely as a grocery chain with a network of branches across the country. Its annual food sales were estimated at $30 billion versus Shoppers $1 billion while its market share of the pharmaceutical products was only 5% (Ligaya, 2013). The retail landscape in the country was rapidly changing, and both companies have had a tremendously hard time in facing competition from U.S. retail giants that have foraged into the Canadian market (Kumar & Amesh, 2012). With these companies expanding their horizons regarding offerings, there was an urgent need for the local businesses to change tact and realign to beat the competition or at least match up to it.

The situation before the merger meant that the consumers could only be able to get the variety of commodities ranging from groceries, home appliances, and pharmaceuticals from companies like Walmart and Target (Kumar & Amesh, 2012). However, through the joining of hands of Loblaw and Shoppers Mart, the competition being brought by the international players and other sizable domestic players will be matched. Most of the businesses in the country are being transformed with the introduction of technology and e-commerce websites. Shoppers have turned to online platforms to have their shopping done, paid for, and delivered at their doorsteps. The situation makes the operation of the business for the regular brick-and-mortar store to face an uphill task. The resulting effect is that the stores have to develop ways that will attract shoppers to their stores (Ligaya, 2013). One of the ways is by having a category mix, just like in the online stores where everything can be found in one place. By diversifying and offering a category mix, the companies give their customers a wide array of choices concerning variety offering.

Before the merger, Loblaw and Shoppers Mart were experiencing dwindling customer numbers except for the few loyal customers and those leaving nearby the stores (Kotter, 2012). For the savvy shopper that wants to get everything in one place and possibly make savings by having a variety of purchases from one store, the obvious choice was the international stores that had earlier adopted the varied category mix. This is seen as a strategy by the two firms to win back the nationals and delight them with the variety offering on their shelves through building on the reputation of a national grocer and national pharmacy store.

Loblaw after the Change

In mid-2013, Loblaw underwent a major change by acquiring the Shoppers Drug Mart store for $12.4B, a move that was anticipated to allow Loblaw to gain more than 1200 drug stores in the shares-and-cash deal (Ligaya, 2013). The move to acquire the largest pharmacy chain in the market has seen elicited reactions from the investors and the market as the share prices for both companies indicated rises.

The new company on a combined basis on pro forma had revenues of over $40 billion and earned $ 3 billion before deduction of taxes, interest, depreciation, and amortization with more than $1 billion in free cash flow (Kumar & Amesh, 2012). A year after the merger, there were projections that the company will result in accelerated growth of the earnings per share of Loblaw’s shares. According to the news release from the two companies just after sealing the deal for the merger, the management was forecasting savings of around $300-million through to the third year with no store closing being foreseen (Ligaya, 2013). The combination of the largest grocery and pharmacy chains in Canada is an example of growth and changes in the industries and economic practices. Companies are shifting their focus from their traditional markets to areas where they see strategic assets. Though the diversification is in areas where the companies have no prior experience, the mergers happen to offer a mutual advantage for continuity in business.

Change in an organization is all about the reviewing and modification of management structures and processes of business to meet the demands of the market in which the company operates. When a business is successful, complacency should not be tolerated as a businesses need to continuously explore better approaches of staying ahead of the competition and increase efficiency and cost-effectiveness (Carnall, 2003). For Loblaw, there have to be change drivers, including factors as competitive environment, new technologies, consumer demands, and prevailing economic conditions.

In Weston’s perspective, the partnership is a game changer in the retail landscape in Canada. The hope is that the momentum of the company along with the strength in the industry is going to be increased in the marketplace. The result of this consolidation of business is as a consequence of the building up of pressure in the Canadian retail space (Hayes, 2014). The existence of American giants, the recent acquisition of U.S. supermarket Safeway Inc. by Sobeys Inc. for $5.8-billion has led to the blurred lines between food, merchandise, services, and pharmacy with the likes of Walmart and others moving to offer a category mix (Ligaya, 2013)

Success of the Change

The change at the two organizations has been successful as has allowed Loblaw venture into new markets and tap into new consumer trends of healthy foods and other wellness-related products. The merger has seen the operations of the companies aligned in terms of revenue collection and service to customers, but Shoppers Drug Mart runs independently (Ligaya, 2013). The change is a success as two national operators in the grocery and drug retail market will be controlling approximately 25% of the Canadian market with roughly over 125 million prescriptions, and the expectation is that the company continues to obtain a significant share of the Canadian market (Minakakis, 2012).

Loblaw is noted to have posted strong sales, efficiencies, and the merger had doubled its profits by the end of the first quarter of 2014 (Kopun 2014). During this period, the company’s revenue increased to $11.4 billion from $7.6 billion. This included $3 billion from Shoppers Drug Mart. Loblaw’s “profit for the first quarter of 2014 was 60 cents per share up from 41 cents per share, for the same quarter in 2013. In addition, same-store sales growth for core grocery operations was 3.3 percent for the quarter and 3.8 percent at Shoppers Drug Mart stores" (Kopun, 2015).

Market analyst had anticipated the Loblaw-Shoppers merger to decrease competition and consumer choices, but the management of the two companies have coped to assure their clients that the merger was a transaction between two complementary businesses and not overlapping, scale-up trades (Ligaya, 2013). As such, instead of eating market shares of each other, the merger has allowed both businesses to complement strengths. Through the merger, Loblaw has expanded its presence in urban areas and responded to the increasing need for a broad range of products offered through small stores and consequently infiltrated tightly populated cities.

Prospects of Facilitated Change

The takeover of Shoppers Mart is more taxing on the labor front that can just be plainly assumed. The grocer operates with two kinds of workforces that are different. At Loblaw, the workforce is highly unionized while Shoppers is much less the case. However, headways are being made into the standalone drugstores by the United Food and Commercial Workers union that has a membership of employees from both retailers ((Minakakis, 2012). The events from the labor unions that are taking place behind the scenes are possibly going to increase the labor costs at Loblaw, which is under pressure to give tangible results in the hyper-competitive market where non-unionized U.S. retail giants like Walmart and Target Corp. are operating (Carnall, 2003).

The change is a step in the right direction as the company will get the leverage, and, as a result, compete with the other retailers in the market favorably. However, some considerations should have been made to increase the effects of the change in a positive manner. First, the company should have considered aligning the organizational cultures at both retailers so that the synergies can be aligned towards the attainment of Loblaw’s vision and mission. When the corporate cultures in a merger are not matched and solutions found to the areas of disconnect, a grand vision of uniting the strengths of the two companies for increased growth and revenues becomes hard to meet.

As one of the models in the Carnegie School theory for organizational change indicates, organizational learning is essential for the accomplishment of the desired change. The different aspects of each of the organization’s uniqueness are supposed to be shared across the board for a smooth transition. The change at Loblaw’s and Shopper’s Mart is worthwhile as the company strives to match the competition in the market and achieve revenue growth targets.

Conclusion

Though the deal has been struck and the elicited reactions in the market point to good times ahead, the Canada Competition Bureau will need to review it because of its magnitude. The discussion delved into the exploration of the manner in which the consumers will be affected negatively. Apart from the authority oversight of the deal, the major worry for the merger is the compatibility of the organizational cultures of the two companies. The deal looks profitable on paper and is on its way to reviving the outlook of the two stores concerning the increasing amount of shoppers and revenue. However, the success of the merger will depend on how the organizations can profitably unite their organizational cultures to stimulate the desired growth (Minakakis, 2012). The acquisition of Shopper’s Mart by Loblaw is not just about the numbers, but Loblaw sees it as a company that fits with its purpose of ‘Live Life Well.’ Loblaw, being a family business, held the belief that the combination of the two companies will result in transforming the lives of Canadians for better through wellness and nutrition.