THE INTERNET ERA

The rapid increase in internet usage has facilitated global business activ- ity. Both large and small businesses are not restricted to thinking only in terms of local markets. Web-based services that are offered through a web browser are helping businesses “go global.”

01

CHAPTER SUPPLEMENT

A Brief History of

Business in Canada

Rawpixel/Fotolia

23

Supermarket

Battles: Then There Were Three

CHAPTER

02

Whether you know it or not, there are essentially three major supermarket chains left in Canada: (1) Loblaws, (2) Sobeys, and (3) Metro. Even if you shop at a retail outlet operating under another banner, chances are it is owned by one of these three. For example, are you wondering why Safeway was not mentioned? It was recently purchased by Sobeys.

There have been many acquisitions in the past few years as the threats from Walmart and upscale supermarkets and from evolving online grocers intensify. This Canadian con- solidation has had a major impact on manufacturers, sup- pliers, and ultimately the consumer. Let’s look at the facts before analyzing the consequences.

Loblaws

Loblaws was founded nearly 100 years ago. It is headquar- tered in Brampton, Ontario, and is a division of Loblaws Companies Limited. Today it has over 2300 retail outlets and 192 000 employees. After years of building up its grocery business and establishing different retail brands,

LO

AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:

LO-1 Explain the concepts of organizational boundaries and multiple organizational environments.

LO-2 Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.

LO-3 Describe the technological environment and its role in business.

LO-4 Describe the political–legal environment and its role in business.

LO-5 Describe the socio-cultural environment and its role in business.

LO-6 Identify emerging challenges and opportunities in the business environment.

LO-7 Understand recent trends in the redrawing of corpo- rate boundaries.

Loblaws shifted gears when it bought Shoppers Drug Mart for $12.4 billion. It is no coincidence that this move occurred at a time when drugstores were transforming into megastores with increased shelf space being allocated to groceries. Loblaws also announced plans to spend $1.2 billion for new stores and renovations to existing ones.

Loblaws Family of Retail Brands: Atlantic Superstore, Box, Dominion, Extra Foods, Fortinos, Loblaws City Market, Independent City Market, No Frills, Real Canadian Superstore, Save Easy, Maxi & Cie, Provigo, Your Independent Grocer, Valu-mart, Zehrs Markets.

The Environment ^of

Business

Pat Holmes/Alamy Stock Photo

Part 1Introducing the Contemporary Business World24

Sobeys Inc.

Sobeys Inc. (owned by Empire Co. Ltd.) was founded over 100 years ago and has headquar- ters in Stellarton, Nova Scotia.

Sobeys has over 1500 stores with outlets in all ten provinces.

It has over 125 000 employees and franchise affiliates. Sobeys made major waves with the pur-

chase of Safeway for $5.8 billion. In 2015, the company announced higher profits due in large part to the acquisition of Sobeys and the estimated $200 million in related annual cost savings from improved operational efficiency.

Sobeys Family of Retail Brands: BoniChoix, FreshCo., Foodland, IGA, Price Chopper, Safeway, Thrifty Foods, Les Marchés Tradition.

Metro Inc.

Metro is a distant third to Sobeys and Loblaws. However, the Montreal-based company has 800 outlets and 65 000 employees. These statistics demonstrate that Metro is another important force in the Canadian grocery business.

Even if it does not have a true national reach like the other two, Metro has a major presence in Ontario and Quebec.

Metro Family of Retail Brands: Food Basics, Metro, SuperC, Marché Richelieu, Marché Ami, Marché Extra and Adonis.

What Does This Consolidation Mean?

After acquiring Shoppers Drug Mart, Loblaws sent a notice to its suppliers telling them that it would not accept any price increases for a full year. Similarly, after the Safeway deal, Sobeys actually demanded a 1 percent price cut from its suppliers; to make matters worse they demanded the reduction retroactively (going back three months). Suppliers were obviously not pleased, but when dealing with a com- pany that controls a thousand or more stores and billions in consumer purchases, what can you do? These mega compa- nies have power and they are not afraid to flex their muscles.

By understanding the material in this chapter, you’ll be better able to assess (1) the impact that events outside a business can have on its owners and man- agers, (2) how environmental change impacts you as a consumer, and (3) the challenges and opportunities that environmental change provides to you as an employee or an investor.

HOW WILL THIS HELP ME?

Andres Rodriguez/Fotolia

CNW Group/SOBEYS INC./Newscom Torontonian/Alamy

Chapter 2The Environment of Business25

In addition, they are pushing their own private-label brands (e.g., President’s Choice at Loblaws), which means shelf space is now much tougher to acquire.

External Threats and Opportunities

So, since suppliers are being squeezed, that should trans- late into cheaper prices for consumers, right? The short answer is . . . maybe. You can only push so far. Legitimate increases in costs will find their way to the aisles. In a busi- ness where margins are very tight, external shocks are extremely important. At the beginning of 2015, Metro’s CEO Eric La Fleche provide an interesting explanation of why his company realized increased profits that year.

He said that lower fuel prices, in the previous six-month period, had led to increased consumer spending in Metro supermarkets. While economists were worried about the impact of the weak price of oil on the economy, supermar- kets were seeing benefits because customers had an extra

$20–$30 per week in their pockets to spend. However, on the downside, the corresponding fall in the Canadian dol- lar (against the U.S. dollar) was leading to increases in the price for imported meat and produce, which meant con- sumers would have to pay more.

Final Thoughts

Next time you are pushing a cart at your favorite gro- cery store, you will realize there is a great battle for your consumer dollar. Every square centimetre of shelf space earned by a manufacturer represents hard-fought territory.

The external environment plays a key role in the potential profitability for supermarket chains and the suppliers that provide the products. This is a tough business operated on a low-margin, high-volume basis.

It is a very delicate balancing act.

QUESTIONS FOR DISCUSSION

1. What are the biggest challenges to long-term success and profitability for Loblaws, Sobeys, and Metro?

2. The three main players in the Canadian grocery market each operate under various brands. Why do you think they still use all those different brand names? Why don’t they just rebrand all their stores?

3. What are the main challenges for suppliers as the industry continues to consolidate?

4. How do the external factors other than competition (econ- omy, technology, socio-cultural, political–legal) impact the grocery business?

LO- 1 ORGANIZATIONAL BOUNDARIES