SCDigest editorial staff

The News: Canadian grocer Loblaw again blamed delays in its supply chain network redesign for lower sales and higher costs; the stock price dropped a further 5% on the news.

The Impact: Worries about Wal-Mart competition lead to massive transformation project, but was it too much, too soon?

The Story: Loblaw struggling to upgrade its distribution system to confront the Wal-Mart challenge, issued a profit warning last week as its supply chain network redesign continued to drag on its results.

Shares in Canada's largest supermarket operator fell about 5% on the news. Loblaw shares, which peaked at $76.50 last April, closed at $54.05. This followed a similar announcement from the company in October, 2005 announcing a drop in 3rd quarter profits, as SCDigest reported earlier.

"The reality is that the supply chain has cost the business," president John Lederer said.

"We have an appreciation for the number and it's not a small number," he said, pegging it at "tens of millions of dollars" but adding: "We're comfortable that will very soon be behind us."

The "transformation" of the supply chain, announced last March, included shutting six warehouses in Ontario and Quebec, with relocations to large new distribution centers.

Loblaw also moved its general-merchandise center from Calgary to Brampton, Ont., and shifted non-grocery distribution to a third-party complex in Pickering, Ont.

Disruptions in getting merchandise to stores erupted "because we moved very quickly - now some might say too quickly," Lederer said.

"When stores expect product and they don't get it, you've got to put extra labor in, you can't get the top-line growth," he said.

"The way in which we were unable to service our customers varied by region and by banner, and there are very rigorous plans in place across the country to address those consumers in a way which will bring those customers back to our store."

Lederer said the upgrade of grocery distribution is complete and the general-merchandise supply chain will be fully streamlined on a national platform by the middle of this year.

The moves come as Loblaw prepares for the likelihood of increasing incursion by Wal-Mart into Canada’s grocery sector.

Do you have any insight into Loblaw’s supply chain challenges/disruptions? Does it sound like a simple case of too much, too soon?