Grocery Business Magazine

 

September 11, 2014

 

Safeway integration sparks revenue gains at Sobeys

But same store sales continue to stagnate

 

The benefits stemming from Sobeys’ $5.8 billion pick-up of 200 Safeway Canadian stores last year continue to flow. Empire Company Limited, Sobeys’ parent reported a massive 35.4 percent increase in sales and a 46.8 percent jump in adjusted net earnings during the first quarter of its 2015 fiscal year.

 

In a conference call with analysts this afternoon Marc Poulin, its president and CEO, attributed the gains primarily to the newly-acquired outlets. These produced $28 million worth of synergies during the quarter, putting Sobeys on track to reach its $100 million target for the year.

 

The first 18-month phase in the Safeway integration process has focused on aligning IT, notably migration of acquired stores to Sobeys’ SAP system and adoption of a more integrated loyalty program strategy. Once these steps are completed the focus will shift “to client facing initiatives” such as a combined private label strategy and possible banner conversions. Poulin also said that Sobeys’ would continue its $600 to $700 million capital expenditure program, to better leverage attractive newly-acquired Safeway locales, and would continue to refine its Better Food for All program.

 

The moves come amidst continued refocusing of Empire Groups’s efforts on its Sobeys grocery business. The company recently announced a $356 million deal to divest four milk processing facilities in Western Canada to Agropur. Sobeys’ also closed 23 non-performing stores during the quarter, said Poulin.

 

A closer look

Sobeys’ results are far less attractive however once you scratch the surface. Same store sales increased by just 1.3 percent compared to the same quarter last year, with the gain more than offset by higher food prices, which means that tonnage actually declined. Internal Sobeys food inflation ran at a 2.0 percent pace during the quarter said Poulin. The rise was concentrated mostly in the fresh segments. Price increases in dry goods, which are under far higher competitive pressures came in at just 1%.

 

According to one analyst the strong results may not guarantee future performance. “The legacy Sobeys business is still under pressure, wrote Michael Van Aelst, an analyst with TD Securities, in a note to clients, citing “the increase in new competitive square footage and less favourable strategic positioning.” Empire’s higher-cost full-service grocery stores are vulnerable to an ongoing shift in consumer preferences to discount outlets and a revival in Loblaw’s full service foot print Van Aelst said.

 

 

peter@peterdiekmeyer.com

 

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