Grocery Business Mag

March 26, 2015

Sobeys preps for second wave of synergies

CEO Poulin seeks savings in marketing, SG&A and logistics

Empire Company’s acquisition of Safeway stores was a positive “long-term” move; this despite a slowing western Canadian economy which is cutting into consumers’ budgets said Marc Poulin, the company’s CEO, at a retail investor conference organized by CIBC this morning. Sobeys, which recently completed the extension of its SAP IT system throughout the Safeway outlets, will cut operations of its legacy backup system in coming days, thus formalizing the transition.

This milestone will position Sobeys to move into a second round of synergies-generation, which will involve coaxing efficiencies from logistics and distribution, selling, general and administrative expenses and marketing efforts. “It will not happen overnight,” said Poulin, of the new initiatives which are expected to generate $200 million in savings. “However the Safeway acquisition has clearly changed our company’s profile.”

Renovations on the agenda

Poulin also noted that benefits stemming from the Safeway deal went far beyond mere dollars. Other advantages include the company’s launch of its Air Miles rewards program across Canada, and acquisition of highly coveted real estate in markets such as Calgary, Edmonton and Vancouver. “These stores will eventually get renovated,” conceded Poulin, who noted that money invested in existing outlets generates a far bigger bang than dollars put in new locales. “The properties, which are in the 25,000 to 50,000 square foot range are exactly the kind we need.”

“Western Canadian demographics are far more attractive than those in the rest of the country,” added Poulin. “Every year there are more babies being born and more teenagers, all of whom will be potential clients.”

Packaged goods: the next front in the inflation wars

Poulin also commented on industry challenges related to passing on higher food inflation costs, which stem in large part from the weak loony which is driving up import prices. Both Poulin, and Eric La Flèche, CEO of Metro stores (who also presented at the conference) noted that most of the price increases in fresh goods have been passed along, though the battle is far from complete.

“The next big wave will come from (US) package goods manufacturers,” said Poulin. “When they realize that $10 million in Canadian dollars is not worth as much as $10 million US, there will be price increases.”

Metro capital spending set to shoot up

La Flèche for his part added details regarding Metro’s plans to boost capital expenditures this year by nearly 50 percent to $300 million. The new funds will be split between renovations, upgrades and new concepts such as the company’s high value-added Humber locale, which opened this morning in Toronto’s Lakeshore area.

Metro is also closely following progress of its two new Ontario Adonis stores, and installing of Premiere Moissan bakery sections in several Quebec outlets. However Metro’s major trend will be to shift focus from regular outlets to Super C and Food Basics discount brands. La Flèche also confirmed that Metro will continue to take on new debt as the company boosts its stock price through share buybacks.


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