He's such a rock star among Britain's elite that one influential newspaper calls him "the best-connected man in the business world." He helped spearhead the turnaround of two giant organizations that are national touchstones. His Rolodex ranges from Prince Charles to Rupert Murdoch. As ever, his name popped up weekly, even daily, in the British press in March—in one case because he wrote an article himself.
Yet in Canada, the name Allan Leighton doesn't ring a bell. That is, unless you closely follow the fortunes and foibles of Loblaw Cos. Ltd., the country's largest retailer, where Leighton is wrapping up a five-year stint.
If Leighton, a guru to the Weston family that controls Loblaw, includes "keep a low profile" as one of his business rules, he doesn't mention it in his bold 2007 book On Leadership (Random House). But that is perhaps because he was just coming to grips with the challenge of maintaining a public image of scion Galen G. Weston as the head of the organization while Leighton himself was in fact running it.
Now, as Leighton prepares for a departure this summer or fall, he's in danger of leaving the country before he's even been properly introduced. He has steadily fended off interview requests, and indeed almost any form of public spotlight, throughout his term. But On Leadership serves up many sharp observations—Leighton's Laws, you could call them—that provide a handy way to grade his record at Loblaw, a once-infallible company that had lurched out of control in 2006 when he was called in to set things right by then-chairman W. Galen Weston.
"The mind is best trained in adversity. Of course, I accept that when you're having to make tough decisions..., you're not going to make yourself popular. But making tough decisions is an inevitable part of being a leader." —On Leadership, page 88
By the time Leighton took over as deputy chairman of Loblaw in September, 2006, he was no stranger to tough fix-it jobs. In the 1990s, he helped turn British discounter Asda, which he had called "a basket case," into a takeover target of no less a retailer than Walmart. Leighton then got a taste of life inside Walmart itself, staying on as CEO of its European division for about a year.
In 2002, Royal Mail, another money-loser, put Leighton in charge of its strike-prone service. Within a few years, Leighton turned its red ink into black.
He faced his match at Loblaw, though. Just a few years earlier, it had been a model for retailers around the world. But now, discombobulated by the threat posed by Walmart, Loblaw couldn't keep its shelves stocked. Products were getting jammed up in overloaded warehouses. Irate customers were deserting to rivals.
Leighton went on the offensive from the start, as a member of a ruling triumvirate. The young Weston, known as G2, had the titular crown as executive chairman. But his father put 53-year-old Leighton in place as a mentor to G2, who was 33 at the time. President Mark Foote, a respected veteran of Canadian Tire, rounded out what company insiders quickly dubbed "the three-headed monster."
Having three strong-minded individuals calling the shots, with Leighton ultimately the power behind the throne, added another layer of stress to a battered operation. Tensions soon bubbled up. Shortly after he became deputy chairman, Leighton instructed his team to carry out the initial phase of restructuring quickly—within six months. Some insiders and consultants thought the feat would require at least twice as much time. Leighton would have none of it. "It will work because I've done it," one former manager recalls Leighton asserting. "You can do it too, so let's just get on with it."
The team raced to do the work, essentially centralizing four regional offices into one and handing pink slips to almost a thousand employees—all in nine months. Leighton pronounced himself pleased. And it was only then that he admitted that he had never done a restructuring of that size in six months. "He'll fool you into doing well, if that's actually necessary," says the former manager. "He's brilliant at distilling a problem into simple components and telling people how things can get fixed. On the other side of the ledger, he's one of the most erratic managers you'll ever meet."
Erratic or no, points to Leighton: He made his underlings learn from adversity. And he's not particularly worried about being popular. "The most popular leaders I've seen fail," he said last year.
At Asda, Leighton took a cue from a Walmart practice known by the unlikely acronym SHITMs (store-head office interactive trading meetings). They were hard-hitting, often angry confrontations between store and regional managers, HQ officials and suppliers, to air difficult issues, such as poor merchandise picks or other faulty planning by head office. They were tense and accusatory but "a fantastic test of the senior team," Leighton wrote.
But not just the senior team would be tested. At these meetings, Leighton put a plank on the table, meant to invoke the fate pirates subjected their captives to. A manager would be made to get up on the plank—and then walk it if stuck for an answer.
At Loblaw, Leighton also instituted daily morning "huddles" with staff, who were summoned on the PA by high-energy tunes like the Rolling Stones' Start Me Up. Leighton's style in meetings is direct and tough. He can come down hard on individual managers, insiders say. "A lot of really good executives can't work with the guy because he's in charge of everything," says the former manager. "There's no room to breathe around him."
Leighton accepts, and even welcomes, constant change. At Loblaw, he's overseen a revolving door of executives. The Leighton-Weston-Foote triumvirate was not in place long before disagreements mounted over pricing policies and store design. By April, 2008, Foote was squeezed out and replaced by Leighton. (Foote is now CEO of Zellers.)
There were other newcomers to the executive suite, and that in itself was a sea change for a closed-shop company, producing protracted uncertainty. Dalton Philips, who became chief operating officer in 2007, previously had headed the Westons' Brown Thomas luxury retail chain. A Walmart alumnus, Philips quickly got to work using Walmart know-how to improve Loblaw's productivity: By mid-2009, cashiers scanned products through the checkout 4% faster than a year earlier; the night shift was stocking shelves 12% faster.
Philips seemed destined to ultimately take the reins at Loblaw. But just as Leighton lost some of his strongest managers at Asda to rivals, so he lost Philips. By early 2010, one of Britain's top grocers, Morrisons, stole away Philips to become its chief executive officer. Leighton no longer had an obvious successor within the company.
But he had other concerns to worry about. He had asked his team to make over Loblaw's stores, including the superstores, which in the early part of the decade had rapidly expanded in Ontario as part of then-president John Lederer's effort to fend off Walmart as it stepped up its food offerings in Canada. Loblaw had added sofas and stereos and other non-food merchandise—product lines outside its core strength. The superstores suffered.
To perk up the business, Leighton launched "Project Shudder." (It was prompted, Leighton said, by "things that make me shudder, that keep me awake at night," according to a former executive.) Leighton's premise was that the overall organization of the stores needed to be clearer, and in particular customers ought to be steered toward higher-margin items. For instance, he envisioned a wall prominently displaying towels. But it wasn't as easy as it sounded. Staff needed as much as a year's notice to order new lines of towels from overseas. Other inventory had already been purchased that would have to be disposed of somehow. Even so, employees went ahead and redesigned parts of the stores, ordering new shelves and signs.
The project was typical of Leighton's unpredictable side: He was strict about staff staying on budget, yet here he had called for changes that had an opposite effect. "It ate up a ton of money," the former executive says. "It was very difficult to implement consistently. It made everybody shudder. We all of a sudden had to execute this program for which we didn't budget. And then [the towel wall]was abandoned, two-thirds implemented." However, a Loblaw spokesperson says that, on the whole, Project Shudder was completed successfully.
Four years into the five-year turnaround effort, Leighton again restructured the company early in 2011, dividing it into discount (superstores and No Frills) and conventional stores (such as the Loblaws, Fortinos and Provigo banners). "I'm just curious as to the timing, as to why this big idea only [came]up now," analyst Patricia Baker at Scotia Capital asked Leighton during the company's quarterly conference call in February. "I would have thought that we would have seen that earlier." Leighton countered that he had been planning the change for two years, but was busy centralizing the business, among other priorities.
Although centralizing may be the official watchword, Leighton's restructuring harks back to the days when power at Loblaw was dispersed among a set of decentralized regional offices. New fiefdoms have emerged of late. T&T, the Asian-focused supermarket chain that Loblaw acquired in 2009, is run separately out of two offices in British Columbia and Ontario. Then there is non-food merchandising, last year consolidated in the hands of emerging company superstar Joe Mimran. The design maven behind Loblaw's fast-growing Joe Fresh Style fashion line works from his downtown Toronto office. Last year, Loblaw relaunched offices in Hamilton for its Fortinos arm, having moved them to Loblaw's Brampton HQ several years earlier. Hamilton is also the site of a project to develop fresh takeout foods.
"They're moving back toward a decentralized business and I subscribe to that," says Richard Currie, president of Loblaw in its heyday of the '80s and '90s, when regional divisions attuned the company to local tastes. "I think that's the right way to run a food retail business."
Leighton would take the view that the constant tweaks strengthen the centralized operation, enabling Loblaw to capitalize on its clout as the biggest retail player in Canada. "The Roman army used to be reorganized every five years," he said at a CIBC World Markets conference in February. "And this is quite [the]same. Every organization is flawed. So, I don't think there is a perfect organization."
How well did Leighton contribute to the best minds being "trained in adversity"? Even if some of the adversity seems to have been deliberately induced, his mark is a respectable B.
"Copy shamelessly. I will freely confess to copying good ideas shamelessly and I can't go past a rival's store without nipping in to see what they are up to now..." —On Leadership, page 39
In his Loblaw assignment, Leighton borrowed freely from his previous turnaround initiatives. Some of the first things he copied were easy wins. He'd learned that during a major transition, communicating with shaken employees was critical. So he launched an "Ask Galen" online forum, modelled on hotlines at Asda and Royal Mail. G2 aims to respond within seven business days to staff. At Royal Mail, Leighton had replied within an hour at his "Ask Allan" site. "I can fix the problem, e-mail back that it's been fixed and the recipient will probably then tell 20 people," Leighton wrote in his book. "That's a huge payback."
As he had in previous corporate transitions, Leighton and members of his executive team travelled to hear complaints from staff even before launching the initial restructuring, called Project Simplify. He set up "positive action groups" (PAGs), as he had done at Asda, to put rising stars in charge of groups to tackle tough problems. The idea at Asda was that the PAGs took action quickly and then disbanded—although the process also identified future leaders at the company. At Loblaw, the exercise appears to have been less successful at grooming talent to eventually fill Leighton's shoes. And some of the PAG initiatives are still works in progress, such as improving superstores and developing an outlet at Toronto's iconic Maple Leaf Gardens site.
As at Asda, Leighton hired McKinsey & Co. to consult on Loblaw's future. Other advisers, including the Boston Consulting Group, came on board at various times. They took over a series of rooms at Loblaw's head office and their bills started to pile up—an unusual sight at a grocer that had always relied on internal smarts. Consultants are still a presence, helping to rejig IT systems.
The blueprint for change that Loblaw unveiled in early 2007 stuck to the tenets of earlier Leighton efforts: Keep it simple and return to the company's roots. At Loblaw, it meant putting the emphasis back on food and in particular its own President's Choice label; overhauling the ailing superstores; repairing the damaged supply chain; and editing down non-food items—even while aiming to expand the Joe Fresh line into a $1-billion brand by 2010.
But first things came first. Project Simplify entailed the nine-month sprint to shave down the organization. As at Asda and Royal Mail, Leighton quickly chopped payroll, leaving Loblaw with close to 1,000 fewer administrative staff.
At Asda, he often had poached from Walmart's playbook, flying to the United States to check out the discounter's stores. (On one trip, a store manager stopped him from taking photos.) He copied Walmart's "Roll Back" discounting campaign, permanently reducing prices on core items.
According to insiders, Leighton tried the same trick at Loblaw, slashing prices by as much as 5% at the discount No Frills and Real Canadian Superstores in 2007, despite internal opposition. Leighton's view was: "We'll drive those bastards out of business," one former manager recalls. "It didn't matter who the bastards were: Walmart, Price Choppers, Food Basics." (The latter two may have shallower pockets than Walmart, but, as the discount arms of Sobeys Inc. and Metro Inc., Loblaw's top rivals, they're not exactly pushovers either.) Some insiders worried that the company hurt by a price war would actually be Loblaw itself. By late in 2007, the battle began to eat into the grocer's gross margins, to the tune of $60 million, or 0.9% of fourth-quarter sales. A year later, the Loblaw team had eased up on its discounting, sources say.
Still, if Leighton is losing sleep, it's probably not because of that setback but rather because of Loblaw's creaky supply chain, which he needs to get working as smoothly as the one at Walmart. Grocers typically run 80 to 90 IT systems tracking such vital functions as customer demand and product availability. Loblaw, in contrast, was bogged down with about 260 systems of various vintages; it's now in the process of paring that number down.
The cost of this confusion can be illustrated by a humble tub of yogurt. With a 40-day shelf life, it should get to stores with 26 days left to expiry. In 2007 at Loblaw, product was arriving at its supermarkets with only about half that number of days left until the yogurt had to be tossed.
On a neighbouring front, Leighton has engineered a quick fix with a Walmart-inspired approach to produce. While fresh food can generate up to twice the margins of packaged groceries, its limited shelf life also makes it riskier. Walmart presses its produce suppliers to ship products in boxes that fit right on its shelves—no more unpacking and restocking. The reduced handling keeps the produce fresher longer, yielding a 50% cost saving, Walmart Canada executives have said. Under Leighton, even Loblaw's non-discount stores use the box-to-shelf display technique.
For building customer loyalty, Leighton turns to the world expert: "We have a model out there with Tesco, where there are lots and lots of similarities," he said in February at the CIBC conference. The No. 1 British grocer is a pioneer in giving its customers rewards and then tailoring merchandise to their habits. Leighton wants to make better use of the reams of information Loblaw gathers about its customers from its PC Financial card. Customers who use the plastic spend at least 30% more at the grocer's stores than those who don't, Leighton said.
But copying good ideas can, by definition, be done by anyone. Loblaw's rivals have jumped on the loyalty bandwagon. In late 2009, Metro, the country's third-largest grocery chain, hired the renowned Tesco-owned loyalty specialist Dunnhumby.
How well did Leighton "copy shamelessly"? If we include self-plagiarization under that directive, his mark is a solid A-minus.
"The best companies are always worried. The biggest threat to an organization always comes from within. It stems from complacency: losing touch with the customer and losing touch with the outside environment. It is called losing the corporate memory." —On Leadership, pages 62–3
Tall and shaven-headed, the kind of executive who can pull off pink shirts and ties, Leighton is a tower of confidence—except when it comes to his outlook for Loblaw. On that subject, he sends a message of constant fretting, especially when it comes to short-term prospects. "We still hover on the darker side of the moon," he said late last year. It's a pattern that analysts have become accustomed to at each quarterly conference call; Scotia Capital's Baker calls it Leighton's "normal, expected hawkish comment."
The hawkish tone became more pronounced once Leighton took the president's job in 2008. A shift in the balance of power was noticeable in the company's conference calls. G2 has generally been the first executive to speak throughout the Leighton era; the change has been in responsibility for fielding analysts' questions. When they were with the company, Foote, Philips and others would share the spotlight on this front. But once Foote and Philips were gone, Leighton started to dominate, making it more obvious that while the young Weston may be the public face of Loblaw, Leighton is its voice on Bay Street. His is a strategy of underpromise and overdeliver. Even while Leighton warns that Loblaw is in its "period of maximum risk," he delivers improved operating profits. It helps him score points with analysts, whose quarterly profit forecasts he now often manages to beat.
How does he do it? Not by substantially revving up core food sales, if at all. Rather, he generates better margins with disciplined cost controls, a tightly managed and more lucrative private-label strategy and tougher negotiations with suppliers. A strong Canadian dollar has also helped with purchasing stateside and overseas in greenbacks.
But Leighton, in the closing months of his reign, has reason to worry: Sales at stores open a year or more have declined in each of the past two years (by 0.6% in 2010 and 1.1% a year earlier). He has said he's not too bothered by this key metric as long as margins rise, which they have. After all, food price deflation has pinched the entire industry.
He has other growth engines in mind. While he's targeted $1 billion a year in sales for Joe Fresh, he's stopped giving a timetable for the goal—even before Loblaw missed the overambitious one for 2010. (Analysts estimate Joe Fresh sales stood at $750 million last year.) This fall, Leighton will gamble on expanding Joe Fresh in the cutthroat U.S. market with a flagship on the pricey Fifth Avenue in Manhattan. Three other stores in the New York City area will follow.
True to his always-worried mantra, Leighton downplays the big bet on Joe in the U.S.—the killing ground for many a Canadian retailer—as simply a test. Yet his own studies have pegged the opportunity for Joe at as many as 800 U.S. stores in five years, as well as outlets in other international spots. Many analysts raise a wary eye to the bold plans, especially with Loblaw facing the challenge of discount giant Target Corp. preparing to enter Canada with its own cheap-chic offerings. "It may be better off for [Loblaw] management to focus its attention on generating superior returns from its local business and preparing for Target's entry into Canada," says Kathleen Wong, retail analyst at Veritas Investment Research.
But Leighton has another arrow in his quiver: a feel for Canadian demographics. By 2031, one in three Canadians will belong to a visible minority—and one in four will be foreign-born—according to Statistics Canada. Loblaw's discount arm No Frills already goes a long way in meeting the burgeoning demands of new Canadians by stocking products such as dried shrimp, fermented black beans and kecap manis. The company's 2009 purchase of T&T made Loblaw the country's No. 1 Asian supermarket player. "This is an area we have to go after," Leighton said at the CIBC World Markets conference in February. "We've got to double up on the size of this business over the next three or four years. We're really now starting to develop our South Asian businesses, our East African businesses, our Middle Eastern businesses."
He envisions newcomers to Canada picking up their first credit card—PC Financial—while shopping for their bok choy or chickpeas at Loblaw. To keep new Canadians coming back, he's focusing on strengthening the plastic's rewards program. (The company considered, but rejected, an idea to treat the loyalty program's biggest spenders in style by decking out a reserved checkout lane with a red carpet and chandelier.) At the same time, Leighton has focused on wooing aging baby boomers: more pills and lotions in pharmacies, more organic and Blue Menu healthy offerings in the grocery aisles.
But Leighton's fretting today about finding future growth vehicles is nothing compared to his worries in 2006. Things were so bad that Leighton (then a Loblaw adviser, not yet deputy chairman) and G2 sought out a private equity partner to infuse more money into the troubled grocer and take it off the public markets. Under Project Fresh, as it was dubbed internally, the pair talked to such major U.S. players as Kohlberg Kravis Roberts and Blackstone, according to sources. (The company itself will not comment.) "They probably received offers that didn't represent enough of a premium over the stock price," says one source. "Today, it would be a really good premium." By the fall of that year, Project Fresh was yanked off the shelf. Soon after, the three-headed monster was born.
If "the best companies always worry," then Leighton gets a sound B-plus…in part for maintaining a high level of internal anxiety at Loblaw.
"The most important thing that a leader does is to leave a legacy. That legacy should be judged on whether the values of the company continue and whether it is as successful when you have gone as it was when you were there." —On Leadership, page 254
A dedicated runner who's prone to a frenetic pace of speaking, Leighton has put Loblaw in better shape to wage war with Walmart. Compared to the pre-Leighton era, the company is a leaner operation, with the beginnings of a modern supply chain in place. There are other signs of a recovery. In 2010, Loblaw posted a profit of $681 million, a far cry from the red ink four years earlier, the grocer's first loss in almost two decades.
Leighton keeps a careful eye on costs: The tab for store renovations, for example, has dropped about 20% since 2007 as the company has bargained for better rates and cut by 40% the time it takes to do the work. Sources say Loblaw moved to preserve cash in 2009, by instituting a policy of paying suppliers in 60 days, rather than in 30 or 45 days.
But Leighton is the first to admit that the work is far from done. Heavy spending on systems will continue for 2011 and 2012—about a year longer than some analysts expected. Even Leighton has warned that 2011 will be "one of the toughest years yet." That could mean more empty shelves, and unhappy customers. It also could put further pressure on Loblaw's stock price, which is about 24% lower today than in 2006 when Leighton came on board. Shareholder value has been sliced by about $3 billion since then—and by $10 billion since the spring of 2005, when Loblaw's shares peaked at $76.34.
Leighton's legacy includes managing a clunky ruling structure that ultimately slowed the turnaround efforts. "It wasn't a smooth process," says Mel Mariampillai, portfolio manager at Sionna Investment Managers, which owns $30 million of Loblaw shares. "There was some significant management changeover. It's taken a very long time for any improvements to be shown. ...But he did things that were necessary." If the stock wasn't as low as it is, Sionna wouldn't hold its shares, he added.
Loblaw's iconic private labels, among them President's Choice, still aren't performing to their potential. Overall progress on improving the store brands' performance has been "6.5 out of 10, in terms of where we can get," Leighton said during the fourth-quarter conference call.
Marks for Leighton's term from Loblaw-watchers range from equivocal to enthusiastic.
Machinations in the company have been watched at arm's length by Stephen Jarislowsky, whose investment firm Jarislowsky Fraser holds roughly $330 million of Loblaw stock. "He's done a reasonable job," says Jarislowsky. "But there are still a lot of problems."
Wong, the Veritas analyst, is more of a fan: "Allan Leighton has done a great job carrying out the five-year restructuring plan and setting up a solid foundation for growth," she says.
Loblaw will be challenged to pump up food sales in the short term, says retail analyst Perry Caicco at CIBC World Markets. Loblaw's "problem is the $25-billion core mainstream food business," he says. "And there appears to be no near-term plan, and not even any near-term optimism. ...The fact is that others are doing better." Those "others" are Sobeys, Metro, Walmart, Costco and ethnic supermarkets, the latter of which "are growing by leaps and bounds."
Richard Currie is underwhelmed with Loblaw under Leighton's leadership. "It's still struggling to find its feet," he says. "It didn't need all that drama. It just needed day-by-day work, some modifications. It didn't need great upheaval."
Ready to take the reins from Leighton is another outsider to the company: Vicente Trius, a 53-year-old native of Spain who previously headed a European division of French retail giant Carrefour, and who is yet another veteran of Walmart. The succession will be "seamless" and Trius will "take up where I left off and make sure all this stuff happens," Leighton said in February.
But Jarislowsky thinks it's a sign of weakness that Leighton didn't have an internal candidate lined up for his job. Dalton Philips was in line, it's true—but there should have been more than one potential heir within such a big company, Jarislowsky says.
Michael Beer, a professor emeritus at Harvard Business School who specializes in corporate renewal, says most great transitioning companies he has studied sustain their legacy by preparing an internal succession process. Bringing in an outsider to a company in transformation "is not the kind of succession that I would predict would carry on the legacy," says Beer, whose book, The Critical Path to Corporate Renewal, was Asda's bible during its revival initiatives in the 1990s.
But there may be another chapter to contribute to Leighton's legacy at Loblaw. He remains as an adviser to the Weston family and deputy chairman of Loblaw's parent, George Weston Ltd. He may still have a hand in steering the ship from the backroom. His successor will need all the help he can get in making Loblaw a star among retailers again.
Leighton's legacy, to date, is an acceptable B-minus.
OVERALL MARK: As the turnaround agent at Loblaw, Leighton set the groundwork for his successor, who will put it all to the test. For good effort and attitude, and an improving bottom line, the guru from Britain scores a final all-in B .