Sobeys West Intensifies Its Lower Price Program

This week Sobeys West stores are a sea of orange as part of their “New! Lower Prices Campaign”.

Bright orange arrows decorate the flyer, end caps, floor stickers and shelf tags highlighting the “1000’s of items” with lower prices right across the store. All staff are wearing electric orange shirts which I assume they are just dying to take off at the end of their shift.

If execution and visibility were the ultimate goals of this program it would get top marks.

However, I am not sure what the launch of this program means for Sobeys West.

Potentially it is an indicator of success of its “Lower Prices On Produce” program, which was launched this past March as a differentiator vs. Real Canadian Superstore, Safeway and Save On Foods. This program continues to run in parallel with the new pricing program.

It could also mean that Sobeys growth has been stagnated by the expansion of Walmart Supercentres in Western Canada along with Loblaw’s roll out of thirty or so No Frills outlets in the region. Price is an easy (albeit expensive) way to stimulate growth in the short term.

While many price reductions at Sobeys are simply applied to the price of a single unit, other price drops on items like Deli World Rye Bread and Lay’s Potato Chips require multiple purchases to benefit from the lower price.

Of course, this program has some similarities to Safeway’s “Everyday Lower Prices” program, which launched in April 2010. Our review of this program at the time showed that while Safeway’s prices were lower, when they were compared to Walmart Supercentre they were still 13% more expensive.

In grocery retail “lower” does not always mean “lowest”.

We expect much of the same situation with this new Sobeys program and while the campaign gives Sobeys a point of communication with their shoppers we don’t think that RCSS and Walmart have much to be afraid of concerning this program.

However, Safeway has recovered market share since launching its program, although we expect that overall profitability to be flat at best given the level of price discounts passed to consumers.

Sobeys is also continuing its high-low flyer strategy (including its “3 Days Only” and “The Big Deal” programs) and offering cash discounts on groceries for redeeming Club Sobeys points. All of this makes a true price comparison to its competitors even more difficult.

While the Western Canada market is a far cry from the uber-competitive Ontario market – the price wars here are definitely heating up for the tail end of 2011.

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