Title: Has Loblaws lost its way in La Belle Province?

Subtitle: A new report by a long-time industry analyst says that the venerable grocer’s banner is “lost and drifting,” in Quebec

 

As if Loblaw’s troubles in Quebec weren’t bad enough, a new report suggests that the food giant’s main banner there is “lost and drifting,” and that its Provigo banner is declining. Furthermore, Maxi, the company’s only source of comfort in Canada’s second-largest grocery market has little strength beyond its regular low everyday prices.

 

Loblaws, writes Perry   Caicco, an analyst with CIBC World Markets, has attempted to position itself between discounters such as Maxi and Super C and traditional brands such as Metro and IGA. However the Loblaws general merchandising and President’s Choice private label “never really resonated with Quebecers so (the company) ended up with no distinctive personality – it essentially did nothing better than anyone else.”

The report, comes on the heals of Loblaw’s massive $900 million write down in the value of its Provigo subsidiary last February, which it picked up for $1.5 billion in 1998.

 

A capital spending battle

Caicco, a long-time grocery industry watcher, compiled many of his most recent his conclusions during a recent tour of supermarkets in the Montreal region, which like most of Quebec, has been spared by Wal-Mart’s recent focus on Ontario.

 

During what Caicco describes as a “typical” visit to a Loblaws on Henri Bourassa Bvld., he saw nothing that offered any material advantage for customers except a weak “Discover the World” merchandising program, which consisted of hundreds of products dumped in bins throughout the store. This combined, with Loblaw’s “underwhelming and defensive,” price promise (C’est pas Cher) equal “bland on bland,” writes Caicco.

 

Price wars in Quebec, where the big three account for a combined 92% of supermarket sales, have been almost non-existent, with most of the competition taking the form of capital spending battles to build, grow or renovate locations. That leaves the successful players there some scope to transfer efforts to the tougher Ontario market. “Thank goodness for Quebec,” writes Caicco. “For Metro and Sobeys it remains a source of immense profitability. For Loblaw, the market has not been friendly.”

 

According to Caicco, Loblaws two main competitors have been particularly successful in the conventional-fresh segment, which is “owned,” by Metro’s “Metro Plus” and Sobey’s “IGA Extra” banners.

 

Falling behind key industry trends

According to one expert, Loblaws woes stem in part from the fact that it has fallen behind two key industry trends. “In both North America and Europe, shopping trips are increasingly split into two categories,” says Richard Talbot, a marketing and merchandising expert and president of Talbot Consultants International Inc. “Some trips are made exclusively for “chore shopping,” for groceries, clothes for kids and so on. The other trips are for pleasure, premium or speciality items such as meats, veggies and pharmaceutical products. Loblaws increasingly isn’t targeting either category as well as they could.”

 

Furthermore, says Talbot, Loblaw’s large stores are increasingly out of touch with baby-boomers, a key group, which is benefiting from more disposable income, now that their families are becoming smaller as their kids leave the nest. “The first boomers are now turning 60. They have less inclination to wade through the bigger stores,” says Talbot. “And when they do, they want to spoil themselves a bit by buying premium or niche products.”

 

Metro: smaller stores, but tougher and better located

One of the biggest surprises since Loblaws entered Quebec in a big way has been the consistent performance of local player Metro Inc., which stood to lose the from taking on the Ontario giant head on.

 

According to one expert, Metro’s weaknesses turned out to be its strengths. “Many Metro stores continue to be run by owner operators who know their local markets well,” said Stephen Jarislowsky, chairman of Jarislowsky Fraser, Metro’s largest shareholder. “As a result, they are often able to keep the number of items that they merchandise at a minimum.”

 

Location also remains a factor said Jarislowsky. “Metro benefits from very strong stores in prime areas, many of which they bought after Steinbergs went under,” says Jarislowsky. “Some of these are located in small towns in which they are the major and dominant player. You just can’t get locations like that any more. They are gold mines.”

 

Caicco agrees. “Quebec remains a nice profit engine for both Metro and Sobeys, while they battle new competition in other markets,” writes the industry veteran. “For Loblaw, Quebec remains a problem. Maxi’s low pricing is all that it has to stand on, and that could cause problems down the road.”

 

Loblaws, through a spokesperson, refused to comment on its Quebec initiatives.

 

 

Peter Diekmeyer (peter@peterdiekmeyer.com) is Canadian Grocer’s Quebec correspondent.

 

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