Analysis of Loblaw Companies Limited

ANALYSIS OF LOBLAW COMPANIES LIMITED

Executive Summary

The purpose of this report is to highlight the findings of the audit that was conducted on Loblaw Companies Limited (Loblaw), a subsidiary of George Weston Limited, and to come to a feasible conclusion about maintaining the company's already successful business. A qualitative and quantitative analysis was conducted through secondary research, using internal and external resources. Since its incorporation in 1956, Loblaw has worked its way up to being one of the largest Canadian private sector employers, as well as the nation's largest food distributor.

Functionality of departments dictates the company's structure, where team superiority stands at the head of this hierarchical organization. These divisions are rigorously tested for compliance on the policies that Loblaw has adopted. Policies and procedures are in place to regulate many areas of the company's business. There are very strict procedures to identify, diagnose and resolve potential problematic situations that may arise regarding food and safety. There are also similar policies in place to prevent environmental degradation. These policies are subject to both internal and external operating commissions. Loblaw demands that its suppliers also strictly adhere to policies dictated by the corporation. These areas affect such activities as quality control and labelling, which are also subject to audits by Loblaw. Employees are valued as a critical resource and are offered additional benefits along with the regular health packages and pension plans. Another social variable that Loblaw takes into consideration is goodwill; an assortment of charities benefit from Loblaw's donations. A substantial section of social awareness is consumer feedback and quality control through the use of focus groups and surveys with this particular organization. Annual reports are released to keep investors updated on the company's progress.

Although food distribution is the main focus of Loblaw, recently it has claimed "superstore" status by offering additional convenient services. The company targets customers through marketing mix that consists of price, product, distribution, and place. Loblaw targets the lower to middle income earning bracket by offering reasonably high quality, diverse goods at low prices. New trends are influencing how people are spending their money, so Loblaw is concentrating on taking advantage of newly evolving spending-habits. The company is implementing their strategies by gearing their products towards the home-oriented, health-conscious and culturally selective consumers. On the other hand, Loblaw is constantly battling competition from other mass merchandisers, which pose a threat to the company.

Loblaw is also attempting to optimize the efficiency of time and money spent. Loblaw owns 65% of the land that its stores are situated on, which saves the company money. Time and money are also saved in the area of trucking of goods, through the use of highly scheduled, temperature-compartmentalized trucks that deliver goods with little to no time spent in warehouses. In addition, money is also saved by reducing amounts spent on the building and upkeep of larger warehouses. Loblaw has seen positive growth in the financial areas of current ratio calculations. However, a poor debt to assets ratio and accounts receivable hinder the company from achieving maximum growth and development.

Loblaw could increase growth by cutting its debt to assets ratio and by the shortening the number of days to collect accounts receivable. In order for Loblaw to continue its domination in the food distribution industry, there are four apparent routes to be acted upon: diffusing into the market even more, maturing into a new market, branching company assets or cultivating current decisions. It is in the best interest of the company to maintain status quo, as it has already taken steps into the three other respective decision areas.

Introduction

The purpose of this report is to audit Loblaw Companies Limited (Loblaw) externally and to make recommendations on how the company can continue to dominate the food distribution industry, based on a S.W.O.T. analysis. This is a significant evaluation, because Loblaw is Canada's largest food distributor, as well as one of the largest private sector employers. Loblaw operates under names such as The Real Canadian Superstore, Fertinos, Provigo, SuperValu, Zehrs, Atlantic Superstore, Loblaws, and Your Independent Grocer. Along with food and household products, Loblaw provides consumers with other services, such as banking, gas stations, pharmacies, photo developing, dry cleaning, and fitness centres. A qualitative and quantitative analysis of Loblaw was conducted through secondary research, using both internal and external sources. This report focuses on the goods distribution and marketing aspects of Loblaw, by exploring its history, primary products, social responsibilities, and financial position. Ratios of the past and present will be taken into consideration when researching and making recommendations.

History

Loblaw Companies Limited was incorporated in 1956 and it now employs over 122 000 part-time and full-time employees throughout its 990 branches. As a subsidiary of George Weston Limited, it has supplied the Canadian market with innovative products and services for more than 45 years. The "superstore" idea was first introduced to Western Canada in 1979. Loblaw operates in a highly competitive industry, challenged by many other supermarkets, such as Safeway.

Organizational Structure (See Appendix A)

The organizational structure of Loblaw Companies Limited is classified according to the functions of each department. Areas of specialization include: auditing, governance and compensation, pensions, environment, health and safety, and executive. Committee and team authority govern this tall, hierarchical organization, where individuals within the several layers report back to their superiors in the chain of command. Ultimately each senior vice-president reports to the executive vice-president, who in turn reports to the president of the company, who is responsible to the Board of Directors. The Board of Directors itself is divided into five committees, which represent each area of specialization.

Social Responsibility

Loblaw demonstrates its social responsibilities in the following areas:

* Environment: Loblaw has various company policies concerning the environment,