Loblaws claims supply chain overhaul successful

by Array

TORONTO, Ontario: The president of Loblaws says a years-long overhaul of the grocery store operator’s supply chain is finally paying off, with almost 99 percent of their products available on the shelves for customers.

“Product availability is 98.8 percent,'” Vicente Trius said at Loblaw Companies Ltd  2012 analyst day in Toronto.

“The product is there,” he added.

Trius said Canada’s largest grocery chain may need to improve its assortment of products, “but the supply chain delivers the product and the product is on our shelves.'”

Loblaws has said it’s still not done with the overhaul: it faces a cash outlay of $70 million this year to bolster its information technology and supply chain and $40 million to continue developing its marketing (which it calls “customer proposition.”)

Spending on the infrastructure overhaul—which should reduce costs and redundancies once completed—is expected to peak in 2012 after more than five years of investment.

The Toronto-based company doesn’t expect profits from operations to be able to cover the expenses it will book in 2012 and as a result expects net earnings per share to be down year-over-year, with more pressure in the first half of the year.

Trius emphasized the importance of fresh food in its stores and said it all ties into the supply chain and how quickly the food gets to the stores.

“Fresh is about the quality, it’s about the experience, it’s about what really brings the loyalty. It’s about how you source, how fast you deliver at the right speed to ensure freshness. We call it field-to-fork. Sometimes I call it field-to-stomach.”

Trius said Loblaws has put new transport and warehouse management systems in place, cut the number of distribution centres to 23 from 27, trimmed expenses and improved customer service. He said the company has labour agreements that give it flexibility and a competitive edge.

The country’s largest grocery store chain, which operates under numerous banners including Loblaws, Real Canadian Superstore, Zehrs, Provigo, No Frills and Atlantic Superstore, launched the revamp in 2007 in an attempt to resolve supply difficulties that had resulted in stock not reaching stores efficiently.

Retail analyst Ed Strapagiel said managing a supply chain and getting products to stores is logistically complex and requires up-to-date technology.

Some of Loblaw’s major competitors like Metro, Sobeys and Walmart are “pretty proficient” at supply chain management, said Strapagiel, executive vice-president of KubasPrimedia retail consultants.

It has been an ongoing weakness for Loblaws for four or five years, Strapagiel said from Toronto.

“Some of this, too, has to do with the fast of change in technology,” he said. “If you put in a system five years ago, today it’s practically done.”

When products aren’t on the shelves, it annoys consumers and impacts retailers.

“If it’s not there, it’s a lost opportunity.”

Strapagiel noted that Target, which will enter the Canadian market in 2013, will build its own distribution centres.

“They’re going to be putting in the latest, greatest technology, automated machines and you name it. That’s going to help them keep them competitive and that certainly puts pressure on the incumbents both in food and non-food categories.”

Discount retailer Target plans to open 125 to 135 stores beginning in 2013.

Loblaws wants to lead in offering products to new Canadians, Trius said, adding that “$1 out of every $3 of new food spend going forward will be spent by new Canadians.”

“This is a country that’s a mosaic and this is a huge opportunity when I look at the market. What an opportunity with new Canadians and what an opportunity with all Canadians.”

He also said Loblaws wants to build on its success of the Joe Fresh clothing brand in other categories such as children’s goods, home essentials and beauty products.

Loblaws will grow by adding more square feet yearly but also by looking opportunities for smaller stores as more Canadians opt for condominiums, he said. Loblaws also wants to grow e-commerce through its Joe Fresh brand by 2013 and have a “best-in-class loyalty card.”

“I want to know our customers better. I want to be able to communicate to them better.”