The Canadian newspaper The Globe and Mail ran an interesting article on an apparent strategic shift for Canadian retailer Loblaw. Whether this is a test or the beginning of a major shift is still unknown however it is definitely a move away from the focused two-tier portfolio strategy that has worked so successfully for Loblaw. The addition of an apparent third/bottom tier at the No Frills banner is more Aldi than Loblaw so it should be interesting to see how this plays out.
Loblaw takes aim at rivals
Loblaw a trailblazer in low-cost private labels such as President’s Choice, is testing an array of new “discount” store brands aimed at attracting more shoppers and fending off a legion of new players in the grocery business.
The strategy of promoting what some retail experts refer to as “fighter” brands is similar to one being used by grocery giant Tesco PLC in Britain to take on mighty Wal-Mart Stores Inc. and other discounters.
Now, Loblaw is borrowing a page from the British private-label playbook by introducing a bevy of brands at its No Frills discount stores, a move that could spiral into a new food fight in Canada.
The move comes amid rising competition in the grocery sector. Retailers ranging from Canadian Tire to Shoppers Drug Mart and Wal-Mart are adding more food products to their shelves.
It is part of a broader push by Loblaw president Allan Leighton, a former British retail executive, to turn around the fortunes of Canada’s largest supermarket chain.
“For Loblaw, it’s the potential to make more profit margins,” said Tom Stephens, a former Loblaw executive who runs Brand Strategy Consultants, a specialist in private labels. “It’s more choice and savings for the consumer. But it’s a further threat to national brands.”
Loblaw’s new products have names such as Bijou (frozen juice), Terra (canned vegetables), Cercle (mayonnaise) and Du Matin (jam). For example, a 950-ml jar of Cercle mayo is $3.49, more than the grocer’s private-label No Name product at $2.59, but less than a smaller jar of Kraft Miracle Whip that sells for $4.29.
Signs and flyers at No Frills promote the line as “discount brands exclusive to No Frills” and “up to 20 per cent cheaper than the big names.”
Loblaw would probably ditch weak-performing lines among national-brand producers if its new private labels took off, said Jim Danahy, managing principal at consultancy CustomerLAB. In the past, Loblaw has dropped soft-selling national brands after introducing new store brands, he said.
“It’s a gutsy move and a creative move,” he said.
Still, in adding new private labels, Loblaw risks pinching sales of its popular President’s Choice line, he warned. And it could be confusing for shoppers to be confronted with so many different brands, added A.G. Manoian, a grocery consultant who was once part of the Loblaw private-label team.
Loblaw may have done better by introducing an even cheaper line of goods, he said. “They really need a ‘deep discount’ layer of products to compete with Wal-Mart.”