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LOBLAW COMPANIES LTD.: EDI AND STRATEGIC GROWTH1 Diversity and…
LOBLAW COMPANIES LTD.: EDI AND STRATEGIC GROWTH1
Diversity and inclusion are key elements of our effort to transform our culture Ultimately, we aspire
to a business culture that is inclusive of all Canadians. A place where our colleagues believe they can succeed by being who they are regardless of race, gender, or orientation. We believe in our core that doing so makes us a better organizationmore creative, more responsive, and more understanding.
In December 2020, Loblaw Companies Limited (Loblaw), headquartered in Brampton, Ontario, Canada, was selected as one of Canada’s “Best Diversity Employers.”3 Measuring up to such an award was challenging. It meant authentically maintaining equity, diversity, and inclusion (EDI) practices across all elements of an organization. Throughout 2020, heightened attention to issues of racial injustice and economic inequalities had sparked many difficult conversations among Loblaw staff, customers, and shareholders, particularly in light of the Black Lives Matter movement and vulnerabilities faced by frontline workers during COVID-19.4
A year earlier, the company had faced controversy regarding the suitability of its so-called “ethnic food aisle,” as well as the company’s strategic acquisition of grocery store chains dedicated to non-Western products, including T&T Supermarket (T&T), which sold primarily Asian foods. The controversy was sparked, in part, by an episode of the podcast “The David Chang Show” that was released on July 4, 2019. In that episode, David Chang, an American restaurant owner and food celebrity, drew attention to the “ethnic food aisle” in grocery stores when he said: “the ethnic food aisle, that is sort of the last bastion of racism that you can see in full daylight in retail America.”5 Kim Pham, co-founder of Omsom, a food company that specialized in Asian “starters,” also highlighted how the “existence of this aisle just continues to ‘other’ [ethnic] communities”6 by negating key aspects of their individual identities.
In 2020, as EDI issues became more common, Loblaw executives intensified discussions about equity and reviewed the company’s commitments.7 Did the current Loblaw corporate strategy reflect evolving expectations of EDI? What action should Loblaw take with regard to its popular “ethnic food aisle?” Should Loblaw continue to expand by acquiring additional “ethnic” grocery store chains? Was Loblaw doing enough to support EDI in the organization?
ABOUT LOBLAW
Founded in 1956, Loblaw successfully gained market share and became a leader in the food and pharmacy sector in Canada. As a publicly traded company, Loblaw operated almost 2,500 corporate and independently operated stores and pharmacies in communities across Canada and had over 190,000 employees. These stores provided customers with a wide range of products and services, including groceries, health and wellness, beauty, apparel, general merchandise, wireless mobile, and financial products. In addition to its physical stores, Loblaw also had a thriving digital retail business and boasted one of the top loyalty programs in the country: PC Optimum.8 Loblaw operated in a highly competitive industry driven primarily by consumer demand. As of the 2019/20 fiscal year, Loblaw was financially prosperous (see Exhibit 1); with revenues of over CA$50 billion,9 it was the top-ranked food retailer in Canada.10
THE CANADIAN SUPERMARKET AND GROCERY STORE INDUSTRY
From 2015 to 2019, the Canadian supermarket and grocery store industry was a low-margin sector (1.8 per cent annualized industry profitability) and high-growth sector (7.9 per cent annualized profit growth).11 Loblaw was the largest food retail channel in Canada. Companies in this sector delivered diverse product mixes to consumers including fresh, prepared, canned, and frozen fruits, as well as vegetable, meat, and dairy items. In 2019, three companies controlled more than three-quarters of the industry. Loblaw was the industry leader with a 36.6 per cent market share, Sobeys Inc. (Sobeys) was second at 28.9 per cent, and Metro Inc. (Metro) had 10.4 per cent of the market.
The entire industry, however, faced growing competition as “supercentre” and “warehouse club” discount retailers such as Walmart Inc. and Costco Wholesale Corporation were gaining momentum by offering an alternative retail experience with one-stop shopping for customers and significant price competition for established retailers. Established retailers responded to the changing competitive landscape with both acquisitions and the expansion of private label products. Sobeys expanded its geographical presence in eastern Canada by acquiring food retailer Farm Boy Inc. and Loblaw expanded its private label business with a focus on organics and “ethnic” foods. Acquisition activity led to an overall industry consolidation, whereas the expansion of private-label products placed further downward pressure on prices as retailers competed on price, product mix, and real estate (location of storefronts for consumer convenience).
Given the industry’s dependence on consumer demands, Canadian supermarkets and grocery stores were attentive to the constantly changing social demographics in Canada. Particular attention was paid to Canada’s changing “ethnic” demographics, and companies were adapting product and service offerings to evolving consumer tastes. Statistics Canada projected that immigrants and second-generation citizens would comprise 44.2-49.7 per cent of the Canadian population in 2036, up from 38.2 per cent in 2011.14 According to the same projections, between 34.7 per cent and 39.9 per cent of the working-age population (15 to 64 years) would belong to a visible minority group in 2036, compared with 19.6 per cent in 2011.15 Immigration had also “shifted from predominantly European to predominantly Asian (South Asian, Filipino, Chinese, Korean, West Asian, and Arab), as well as Blacks and Latin Americans.”16 Canada’s population was projected to become more diverse in the future, and businesses, both at the national and local levels, needed to respond to these changes to survive.17 Immigrants and second-generation Canadians were already wielding significant purchasing power, and this would only increase over time.
“ETHNIC” FOODS IN CANADA
The “ethnic food aisle” label was used in many large grocery chains and had well-intentioned origin. Early “ethnic food aisles” were established in North American grocery stores after World War II, mainly for customers who had returned from military service overseas with an acquired taste for foreign foods. Grocers sourced products to satisfy this new consumer demand and grouped imported items together in “ethnic food aisles,” regardless of food type or country of origin. Over time, some of the items (e.g., Italian pastas, German sausage) were reclassified as North American foods and integrated across other aisles. However, most Asian foods continued to be categorized as “ethnic,” particularly foods belonging to the Chinese, Japanese, Thai, and Indian cuisines.
Although the “ethnic food aisle” had existed for decades, continued reliance on these practices did not necessarily reflect growing and evolving consumer demands for international cuisines. In 2010, a CIBC industry analyst estimated that independent “ethnic” grocery stores accounted for 5 per cent ($4 billion) to 6.25 per cent ($5 billion) of Canada’s $80 billion food industry, and that the “ethnic” food sector was growing by 15 to 20 per cent a year.20 Additional studies showed that Chinese and South Asian Canadians spent between 9 to 23 per cent more than the average Canadian shopper on weekly groceries. Consequently, grocery stores dedicated entirely to specific “ethnic” groups proliferated throughout Canada, offering more immersive experiences for shoppers interested in “ethnic” cuisine.
T&T was generally considered Canada’s most well-known “ethnic” grocery store. It was launched in 1993 in Burnaby and Richmond, British Columbia with the goal of “bringing the best of Asian fresh food and groceries under one roof.”22 The company quickly expanded to 26 stores across Canada, demonstrating the strength of this business model.23 Other large “ethnic” grocery stores soon emerged in Canada. H Mart Companies Inc. (Hmart) was a Korean grocery store with 20 locations across Canada.24 Marché Adonis (Adonis) was a supermarket with a focus on Middle Eastern, Lebanese, and Mediterranean cuisine that had 17 locations across eastern Canada.25 Thousands of independent grocery stores focused on specific types of “ethnic” cuisine.26 In light of these industry trends and the emergence of successful competitors, Loblaw would have to develop a more robust strategy.
LOBLAW’S EXPANSION THROUGH ACQUISITION
Loblaw had an aggressive acquisition history spanning 30 years. The company had focused on geographical expansion in eastern Canada, along with selected expansion tactics to appeal to immigrant and “ethnic” shoppers (see Exhibit 2). In 2009, Loblaw acquired T&T for $225 million and accelerated its expansion across Canada, adding 10 new stores between 2009 and 2020 to grow its “ethnic” market reach.
The acquisition of T&T will help us extend our ethnic offering to better serve Canada’s largest growing customer segment and positions us for future growth in the ethnic food market. Loblaw customers across all banners will enjoy the benefits of an expanded variety and enhanced quality of Asian foods as a result of this acquisition and the experience garnered from T&T management.
Five years later, Loblaw continued its expansion by acquiring ARZ Fine Foods Inc., a Middle Eastern grocery store for an undisclosed amount to target new Canadians:
The stores in our emerging business are growing to meet the needs of new Canadians. T&T Supermarket appeals to Asian tastes in fresh and prepared goods. Fortinos has a European style and a focus on fresh meat and produce. In 2014, we acquired ARZ Fine Foods, a Toronto-based Middle Eastern bakery and grocery retailer.29
Loblaw was not the only company pursuing strategic expansion by acquiring “ethnic” grocery stores. Metro purchased Adonis in 2011, and other large retailers (e.g., Walmart Inc., Amazon.com Inc.) were expected to apply similar strategies. Additionally, as the firm continued to make aggressive acquisitions, Loblaw would need to strategically manage limited resources. After its expansion into the health and wellness market with the acquisition of the giant pharmacy chain Shoppers Drug Mart Inc., Loblaw had even more options to consider. The company would have to decide how involved it should be in the operation of established store chains, such as T&Ta store with a considerably different customer base than the traditional Loblaw grocery stores.
DIVERSITY AND INCLUSION AT LOBLAW
Loblaw needed to decide how to address emerging concerns surrounding the “ethnic food aisle.” On one hand, it was difficult to justify organizing products based on their country of origin when other grocery store sections were organized by product type (e.g., dairy, bakery, and produce items): this could perpetuate the “othering” of “ethnic” communities and had already been addressed on Loblaw’s grocery websites (see Exhibit 3). On the other hand, the “ethnic food aisle” might serve as an expression of culture and identity to customers from specific countries of origin and provide a reminder that consumers with similar food traditions were present in the local community. The current categorization of these products also enhanced the shopping experience by increasing convenience for shoppers who purchased multiple ingredients in a single regional cuisine category.
Tensions between these seemingly mutually exclusive needs were apparent to Loblaw. In response to concerns about “ethnic food aisles,” Loblaw issued two corporate statements that were seemingly at odds with each other. On the one hand, a representative from Loblaw suggested that the aisles would be eliminated in the future: “The original mission was to give shoppers a place to discover ‘international flavours;’ many of those flavours are now ‘more mainstream.’ So as we renovate our stores, we are moving items from a dedicated international aisle to relevant sections in the grocery aisles.”
On the other hand, Tina Lee, the chief executive officer of T&T, issued a statement suggesting that fully removing the aisles could be a mistake: “I think the jury’s still out on whether that is even the right move.”31 Lee pointed out that some regions around the country have few Chinese residents and fewer “ethnic” grocers: “the one Chinese Canadian that does live there, they might actually complain to the store if their products were spread out around every aisle and you asked them to walk 50,000 square feet [4,600 square metres] for the 10 items that they want.”32 The issues were not clear cut and it was difficult to see a clear path forward.
Moreover, Loblaw had clearly stated that diversity was a priority in the firm’s 2019 corporate social responsibility report: “We are committed to a diverse and inclusive environment for both our customers and our colleagues. We have had a long-standing commitment to reflect our nation’s diversity at all levels of the organization and we recognize the importance of creating a workplace where colleagues can be their authentic selves and contribute fully.”33 Their efforts were again rewarded when, in 2020, Loblaw was for the ninth consecutive yeardesignated one of Canada’s Best Diversity Employers, winning the Mediacorp Canada Incorporated award that acknowledged diversity initiatives across a variety of areas.
An announcement disclosing Loblaw as the winner of the award praised the firm’s initiatives, including an “Inclusion Council” with participants from all levels of the organization; “Colleague Resource Groups” that were focused on education, events, networking, partnerships/sponsorships, and leadership development (e.g., “GoFurtherWomen@Loblaw” focused on activities related to International Women’s Day and sponsored high-potential women for development opportunities and corporate promotions); inclusion toolkits for hiring managers, recruiters, and new employees; LGBTQ+ pride support efforts;36 and a multicultural merchandising department for sourcing products tailored to diverse communities, events, and celebrations.
While Loblaw reported strong numbers for women in senior leadership, it set additional targets to achieve numbers closer to parity with male counterparts. As the company stated in the Management Proxy Circular for its 2020 annual meeting of shareholders: “While currently, 42% of our Board of Directors, 30% of executives (VP [vice-president] and above) and 40% of management (below VP) roles are filled by women our goal is to reach 40% women executives and 43% women in management roles by 2024.”37 In addition, the company wrestled with how to respond to demands for improved consideration of EDI factors in its product and distribution mix. Many consumers were accustomed to the location of the “ethnic food aisle” in the grocery store layout, and some acknowledged that it streamlined their shopping experience.38 Others probably found it problematic. How could Loblaw ensure that it was meeting divergent consumer expectations and ensure it addressed its own diversity initiatives and commitments?
LOOKING AHEAD
Although Loblaw had invested significant effort in promoting diversity and inclusion within the company, new concerns continued to emerge as the organization grew and social issues evolved. Practices that had been adopted in the past, like the “ethnic food aisle,” were subject to new interpretations as demographics and expectations shifted. As a market leader, Loblaw’s strategy called for consistent efforts to foster inclusiveness, maintain a level of convenience for shoppers, and ensure profitability for the “ethnic” food items sold.
“Ethnic” grocery stores (dubbed “emerging business” by Loblaw) were an area of growth for the company. Loblaw’s 2009 acquisition of T&T was successful and enabled the company to reach shoppers in a growing demographic category in Canada. But what was the best way to move forward? Should Loblaw seek to acquire other grocery stores that targeted shoppers in growing demographic categories, such as Hmart, which dominated the Korean food market?
Finally, what factors needed to be considered to best serve an increasingly diverse client base and business focus? Was Loblaw ensuring enough diversity across the organization? Loblaw had established targets for women in executive and management positions (i.e., for women to hold at least 40 per cent of vice president or higher positions by 2024), but within the five-person executive team, four were men and all were white hardly an accurate representation of contemporary Canada.39 Should Loblaw stop making acquisitions until its internal corporate profile reflected its diverse consumer base?
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