Sobey’s Strategizes Its Growth In The Number Two Position

Sobeys, Canada’s second largest food chain based in Stellarton, Nova Scotia, is poised to experience a significant change to its business as Target continues to open its new locations across Canada in 2013.

As the official supplier of food to Target stores across the nation, Sobeys business is about to exponentially expand as Target stores continue to open, and by all accounts, experience a high degree of success with the Canadian public.

Canadian grocers are currently under pressure as Wal-Mart expands its food offerings across the country and Target continues to open its stores.

Target is slated to open 125-135 stores in Canada that began to open in March of this year, with most locations expected to open by the end of the year.

Sobeys had provided limited food distribution to Zellers before its leases were purchased, but food distribution to Target is expected to be much more significant.  In fact, Sobeys is partially insulated from the increasing pressure of the industry since it has inked a deal with Target.

Sobeys will supply food and grocery items such as frozen, dairy and dry goods that will include national brands and Target private label products.

This is just the start of a long-term partnership for the grocer that could see expanded offerings in the future.

“We plan to have a long-term relationship with Sobeys,” said Tony Fisher, president of Target Canada.  “We want to look into what further supply chain opportunities there may be with Sobeys…I think there could be other opportunities for us to explore an expanded partnership when it comes to food supply chain with Sobeys.”

Apart from its partnership with Target, Sobeys has been busy orchestrating a number of strategic moves over the last number of years that have proven to be successful thus far.

In the fourth quarter of 2012, the company acquired 236 retail gas locations and related convenience store operations.  Sobeys President Mark Poulin said the grocer is looking to capitalize on the convenience store sector by cross-promoting Sobeys in the gas and convenience centres.

Sobeys sales contribution to parent Empire ending the fourth quarter 2012 rose $100.8 million or 2.6%, excluding sales from gas and convenience outlets.

The company has also been in the process of converting all of its Price Chopper stores to the FreshCo banner.  This is expected to be completed by year-end.  The FreshCo banner will directly compete with the Loblaw No Frills banner with an emphasis on low-priced produce and ethnic food.

The company is even a step ahead of rival Loblaw with the major ownership of the Crombie REIT since 2006 that holds a number of Empire properties.  In December 2012, Loblaw announced the intention to create its own REIT to purchase its real estate assets.

The company also produces the popular Inspired Magazine that is free for customers.  The magazine features very appealing and beautifully illustrated recipes that customers can try while purchasing ingredients at the store.

A visit into a local Sobeys store also provides customers with specialized counters including the gourmet cheese shop, the deli counter, seafood counter and of course the other departments including produce, meat, grocery and bakery.

The deli counter is impressive indeed with hundreds of deli meats and gourmet cheeses.  There is a number of specialty dishes designed to appeal to customers for any occasion.  There is an increased quantity in the gourmet selection provided.

At the seafood counter, premium hard-shelled Nova Scotia lobster is supplied and customers have the option of having seafood steamed while they shop.

One other major development is the upcoming centralization of procurement activities, which is long overdue in our opinion and will give Sobeys more negotiation power on a national scale. The challenge of this change will be to ensure that Sobeys does not lose touch with its local market sensibilities, which allowed its IGA banner to grow to be the number one grocer in Quebec.

Sobeys has undergone a number of successful shifts in business strategy recently and will continue to benefit from its partnership with Target, at least in the medium term.  It’s never easy being “number two” but Sobeys is carving out a unique strategy to help it effectively compete with Loblaw and Walmart in a tight Canadian retail market.







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