BY COLIN CAMPBELL • When Loblaw Cos. released its latest annual report last week, it not only marked the first loss for the Torontobased grocery company in 19 years—$756 million in the red, for the last three months of 2006 alone. It was also a chance for new management to make a dramatic break from the sins of their predecessors, a manoeuvre known in financial circles as “the big bath.” And what a bath it was.1 Loblaw’s loss was primarily the result of a massive $800-million writedown of the value of its Provigo stores in Quebec, which it acquired in 1998.
The report was contrite, offering some telling apologies, with a subtle message: “don’t blame us.” “The organization is more complex and less responsive than it should have been,” a statement read. “Loblaw lacked the structural agility and vigour to address its changing environment.” This, of course, is not only an explanation for the loss, but also for last September’s management shakeup, in which president John Lederer was replaced by former Canadian Tire executive Mark Foote, and Galen Weston, of Loblaw’s controlling Weston family, stepped up to become executive chairman.
THE SUBTLE MESSAGE BEHIND THE HUGE LOSS: ‘DON’T BLAME US’
The writedown leading to Loblaw’s loss is a statement that the stores were overvalued by the more optimistic old guard, says John Chamberlain, senior vice-president of Dominion Bond Rating Service. “Provigo wasn’t great a year ago and is a little less great now, but it hasn’t declined by as much as the accounting value has.” Loblaw’s accounting writedown not only lays blame on the departed, it offers the new team a clean slate. “When a new coach comes in you can buy yourself a bit of time and look better yourself when you do succeed,” explains Chamberlain. As the annual report summed up, “We enter 2007 with a new leadership team, a resolve to restore Loblaw to profitability and growth, and a game plan for doing it.” Translation: we didn’t make this mess, but we’ll fix it. M
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