TORONTO — Canada’s largest grocery retailer is restocking about half of the products it may have overzealously removed from shelves in a “broad brush” sweep to remove products sitting on “valuable real estate” that weren’t selling.
The system used to remove about 10 per cent of products from stores as part of its renewal plan was not sophisticated enough to properly identify unpopular products, Galen G. Weston, executive chairman at Loblaw Companies Ltd. (TSX:L) said at the company’s annual general meeting Wednesday.
“We knew we’d get probably about half of it wrong, not necessarily across the country, but on an individual store (basis),” he explained to an employee who was confused after seeing some President’s Choice and No-name products return to the shelves.
“Then we’d have to go through the process based on the customer calling us or letting you know what they want and we’d bring back those five per cent of (products) that really matter to that store,” he added.
Weston said he is aware that the process is disruptive, but added the company is working to implement a new information technology system that will provide merchants with better understanding about products—from ethnic foods to private labels— that matter to customers at individual stores.
“We’ll be able to make sure the assortments service your customers much better than we have done in the past.”
Loblaw has had years of difficulties in updating its supply chain and merchandise management as it moved to compete with Walmart by offering a broader range of non-grocery items including furniture, clothing and consumer electronics.
The grocery chain, which operates across Canada under numerous banners including Loblaws, Real Canadian Superstore, Zehrs, Provigo, No Frills and Atlantic Superstore, launched a revamp of its distribution facilities in 2007, in an attempt to resolve supply difficulties that had resulted in stock not reaching stores efficiently.
Loblaw is now three years into its renewal plan, and there is still much to be done, and opportunity for improvement, Weston said.
“Our processes are still too cumbersome, making life too difficult for our stores and for our merchandising teams. As a result, our approach to customers, vendors, and to colleagues remains inconsistent and sub optimal,” he added.
Weston said an uncertain economic and competitive environment are ahead and significant risks to the business remain. Meanwhile, Loblaw is on track with plans to spend $1 billion this year on store renovations and infrastructure upgrades, with investments in technology and supply chain efficiencies.
The company said it earned $137 million or 50 cents per share during the quarter. That’s up from $109 million or 40 cents per share in the comparable period of 2009.
Loblaw’s revenue was up 3.1 per cent compared with the same time last year, rising to $6.9 billion from $6.7 billion — thanks largely to the acquisition of T&T Supermarket Inc., a chain that caters to ethnic Chinese customers. Same-store sales inched up by 0.3 per cent.
“We have had a reasonable degree of success over the last couple of quarters, however its worth mentioning that the earnings of the company are not yet matching the earnings of the company in 2005, so to get back to where we were there’s still a significant journey,” Weston said.
The company has said it plans to “aggressively” increase market share in its drug store business to help offset a move by the Ontario government to cut the funding pharmacies receive.
Loblaw has nearly 500 pharmacies in its grocery stores across the country, and said that if Ontario eliminates the professional allowances currently paid to drug stores by generic drug manufacturers, the impact on its pharmacy business will be “substantial.”
“This is exactly the kind of change in the fundamental economic structure of the market that makes broad-based multi assortment retailers, gives them an advantage...it’s not as costly for us so we can afford to make sure the customers get more service,” Weston said Wednesday.
Loblaw, a subsidiary of George Weston Limited (TSX:WN), is Canada’s largest food distributor. Shares in the company dropped 54 cents each to $37.61 Wednesday on the Toronto Stock Exchange.