STELLARTON, Nova Scotia — Sobeys Inc. has announced that it will move forward with plans to convert up to 25% of its 255 Safeway and Sobeys full-service supermarkets in western Canada to its discount FreshCo banner over the next five years.
Sobeys, which already runs 91 FreshCo stores in Ontario, has been considering for years moving beyond that province with the low-cost format.
“This is a very attractive strategic and financial opportunity for us that will grow our market share in the western provinces in a profitable way,” says president and chief executive officer Michael Medline. “Our comprehensive research and analysis shows that the west is fertile ground for ‘small box’ discount, and that our FreshCo banner will resonate with consumers in western Canada.
“This expansion is one piece of a comprehensive strategy to execute the transformation of our company through Project Sunrise, greatly improve our conventional offering, bolster our brand and grow our industry-leading market share in e-commerce,” he adds.
Empire Co. Ltd., the parent of Sobeys, will start in 2018 to convert almost 65 of the 255 Safeway and Sobeys stores in western Canada to FreshCo, with the bulk of the changes coming over the next four years.
The FreshCo stores in western Canada will showcase evolved branding, product offerings and customer marketing to reflect the company’s learnings in Ontario. A number of locations will provide an enhanced ethnic offering that has been successfully introduced in the Ontario market.
As Sobeys prepares to introduce more discount stores, it is contenting with a customer perception of overly high prices, added costs of rising minimum wages, and a massive organizational transformation, which threatens to cause operational disruptions in the coming months.
While company executives indicate that they were satisfied with the transformation efforts so far, they warn that Sobeys is heading into its riskiest period as it lays off 800 office staff and trims down its operations, potentially pinching profit margins or sales in the next two quarters.
The supermarket retailer also raised its estimate to $240 million (Canadian) from $200 million for one-time cash costs it would incur tied to severance, relocation, consulting and “minor system developments.”
Medline says that while discount grocery is picking up quickly, that segment isn’t as intense in western Canada as it is in Central Canada: “There is a lot of white space.”
He adds that Sobeys will convert its unprofitable stores — mainly Safeway outlets but some Sobeys as well — to FreshCo in the next five years. But it will close a “limited” number of under-performing stores in western Canada rather than turning them into FreshCo outlets.