TORONTO – Loblaw Co. Ltd. (TSX:L) is cutting hundreds of mostly head office jobs as Canada’s largest supermarket chain continues a makeover aimed at making it more competitive in the increasingly crowded grocery segment.
“We’re managing costs where it makes sense by reducing administrative expense,” Loblaw president Vicente Trius said in announcing some 700 management and administrative jobs were being trimmed.
The company, which operates under several banners including Loblaws, Zehrs, and Real Canadian Super Store, has about 135,000 full-time and part-time employees across the country.
The cuts will affect about 10 per cent of its management and administrative staff.
Loblaw said the layoff notices would begin going out Tuesday and the cuts should be complete within three weeks.
The move will result in a one-time expense of $60 million, to be recorded in the fourth quarter of its financial year.
RBC Capital Markets analyst Irene Nattel called the move a step toward making the company more productive.
“Loblaw is generally not the leanest of organizations and today’s announcement is a move toward streamlining functions,” Nattel wrote in a report, adding that she expects the company to realize annual savings in the neighbourhood of $60 million, starting in 2013.
“But we would not assume that the cost savings will necessarily flow to the bottom line, but rather be reinvested in pricing (and) in-store service to drive top-line performance,” Nattel said.
Loblaw spokeswoman Julija Hunter said the move its part of the company’s long-term strategic plan and to make good on its commitment to become more efficient and increase investment value.
“Were are streamlining the organization and reducing costs to strengthen our competitive position,” Hunter, vice-president for public relations, said in an interview.
“We feel confident in this direction — that the changes will help eliminate duplication, help us prioritize better and focus on our customer experience in our stores more effectively.”
The supermarket chain operates in an intensely competitive market against other Canadian grocery chains, such as Sobeys and Metro, as well as other retailers that offer food as part of their lineup — including Walmart
Minneapolis-based Target Corp (NYSE:TGT) is set to enter the fray next year as the U.S. discount retail gain begins opening the first of 124 stores across Canada starting in March and April.
Those stores also plan to sell frozen, dairy and dry grocery products being supplied by Sobeys under a deal announced last fall.
Loblaw has been going through a series of restructurings for several years, as it has introduced more non-grocery merchandise items, adopted new store formats and reworked its distribution and information technology systems.
George Condon, consulting editor for industry publication Canadian Grocer, said he wasn’t surprised by the cuts.
“With the increasing competition in square footage of grocery space from Walmart, and next year from Target, everybody is concerned about their profit margins and Loblaws would clearly like to make sure that they have some manoeuvring room,” Condon said.
Asked if he thought Loblaws was a bit top heavy on the management and administrative side, Condon replied that “there seems to be an awful lot of people out there at their head office in Brampton.”
“I have no idea what a top heavy retailer would look like, but it seems to me they had more than enough people to do the work that they’re doing.”
Meanwhile, he noted that the grocery chain had been “a little bit slow to recover from the problems it had four or five years ago” involving supply chain issues and other problems and “had to do something” to shore up its competitive position.
“They’ve been trying to fix it for the last five years and the last two years they’ve made some progress,” he said.
Condon said the company’s new president appears to be optimistic going forward “but I’m not too sure they’ve fixed everything just yet.”
Among other things, he said very few Loblaws stores offer a “really exciting consumer experience.”
“That’s one of the things that I think shoppers are looking for these days. They’re looking for something really unique and fun.”
And while there are a number of exceptions, including the company’s Maple Leaf Gardens store in downtown Toronto, “a lot of their other stores are . . . kind of looking and feeling a bit dated.”
“There (also) seems to be a current trend in Canada and in the United States for smaller, neighbourhood stores and I think Loblaws is kind of stuck with a few too many superstores,” he added.
On the Toronto Stock Exchange, Loblaw shares were up 78 cents, or 2.3 per cent, at $34.66 in early afternoon trading Tuesday.