Grocery Business Magazine

December 9, 2015

Dollarama swoons, Sobeys struggles
Grocer faces continued digestion issues from Safeway acquisition. Discounter profits from tough economy.

Tough economic times are producing diverging performances in the Sobeys and Dollarama banners. The latter appears to be thriving, while Empire Company, Sobeys’ parent, continues to skid along a rough patch. CEO Marc Poulin, in a conference call with analysts this morning said the shoddy performance is due in part to “integration of Safeway (which) continues to present challenges.”

Same store sales at Canada’s second largest grocer were essentially flat during the quarter ended October 31, 2015. The fact that company did not lose ground was almost solely due to inflation related price increases, which averaged 2.4% during the period. Profits, not surprisingly, also tanked. Fully diluted earnings per share fell by 40% from $0.42 per share during the same quarter last year to just $0.25 per share. Lack of a discount banner in Western Canada continues to hurt Sobeys, during a time when the economy is slowing, due to plunging oil prices which recently fell below the $40 handle.

Poulin also cited several specific factors that were hampering the company. These include store closures, lower fuel sales and difficulties in shifting to Sobeys’ Compliments brand in western stores, and away from the Safeway brand, which appears to have had surprising traction in consumers’ minds. “In some cases we kept the new Compliments products identical (to the Safeway products they were replacing), the only thing we changed was the packaging, but consumers wouldn’t accept the new offering,” said Poulin. “We initially thought this was related to the lack of promotion during the transition, but soon realized these was more to it than that.”

Poulin also noted that consolidation of Sobeys’ old Edmonton Alberta office with the Safeway Calgary office is going well, and that he was particularly happy with the number of employees who agreed to make the transition. He also noted that despite Sobeys’ other challenges that its Better Food for All positioning is “resonating well with consumers.”


Dollarama: when the going gets tough …
Dollarama for its part is facing serious headwinds stemming from the weak Canadian dollar, which is hampering purchases of imported goods from China and other emerging markets. However the company appears to be doing just fine. Much of its strength stems from the weak Canadian economy, which has customers looking to save money by buying its many bargain products. The company’s hedging strategies, which helped protect Dollarama from part of the effects of the loonie’s decline also helped.

Comparable store sales at the discounting giant, which added its 1,000th outlet during the quarter, rose by an impressive 6.4%. Diluted earnings per share shot up by a healthy 41.8%, from $0.55 per share to $0.78. Over the medium term Larry Rossy, Dollarama’s CEO admits, the company will introduce new price points, notably items priced in the $3.50 and $4.00 range. Dollarama, which opened 16 new stores during past quarter, is projecting to add another 70 new outlets in 2016. The company is also testing the use of credit cards in a pilot project in British Columbia, its first such effort in five years.


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