Sobeys to cut 800 office jobs as part of reorganization of grocery business

TORONTO — The Sobeys grocery business will be cutting about 800 office jobs across Canada as part of efforts to create one efficient national organization out of five regional operations, the company announced Friday.

“The future success of Sobeys, and our continued service to over 900 communities across the country, depends on our steadfast commitment to transform our business,” said Michael Medline, who is chief executive of Sobeys and its parent company, Empire Co. Ltd. (TSX:EMP.B)

Local reports of the news began to emerge late Thursday ahead of an internal announcement to Sobeys staff. The company confirmed the reports Friday morning.

Sobeys is Canada’s second-largest grocery company, after Loblaw Cos. Ltd. (TSX:L), and faces many of the same challenges in the industry: competition from new rivals, higher costs from rising minimum wages in some areas and technological change.

However, the company has also been struggling for several years with problems arising from its acquisition of Safeway Canada — which gave Sobeys a much bigger presence in Western Canada.

“The first phase of our plan to transform our business, which has been focused on resetting the foundation of Sobeys and creating a new organization structure, is now substantially complete,” Medline said in a statement to the media.

“This will allow us to be more efficient in many ways and to be more agile as we pursue new opportunities to compete and win the loyalty of Canadians.”

In September, Empire reported that it was on track to achieve $500 million in annual cost savings as part of its transformation plan, dubbed Project Sunrise.

It also reported that Sobeys had achieved same-store sales growth in the first quarter of its 2018 financial year. It was the first time in 18 months that Sobeys had reported higher year-over-year sales at stores open at least a year.

Shares of Empire — which owns Sobeys Inc. and has an interest in the publicly-traded Crombie real-estate trust — were up about one per cent Friday morning.

The stock has been stepping up in stages since the beginning of the year, when they were worth about $$15.55 each, and were above $25 each last week.

Analyst Irene Nattel of RBC Dominion Securities wrote in a note to clients that the elimination of about 20 per cent of the Sobeys office workforce is a “critical step” towards reducing the company’s operating burden — but she remains cautious.

“In our view . . . successful and timely implementation of the strategic plan boils down to execution and the process is unlikely to move forward in a straight line, with the CEO reiterating on the most recent conference call that quarterly performance is likely to ebb and flow as they execute Project Sunrise,” Nattel wrote.

“Given the magnitude of the task that lies ahead, the competitive environment, EMP’s structural disadvantage in the discount space and rising ecommerce penetration, we recommend investors remain cautious . . . “

Among the major challenges that face Canada’s major domestic grocers, including Loblaw, Sobeys and Montreal-based Metro Inc. (TSX:MRU), is Amazon.com’s increased presence in food retailing — including its recent acquisition of the Whole Foods chain of grocery stores.

While Whole Foods has few stores in Canada, the country’s domestic grocers have worked to improve their efficiency to defend themselves from Amazon’s move into a bricks-and-mortar business to complement its disruptive online presence.

Additionally, Sobeys and other national retailers have said they expect labour costs to rise as a result of higher minimum wages in Ontario — the country’s biggest provincial economy — as well as higher food costs.

The Competition Bureau is also investigating the grocery industry amid allegations of price-fixing in the packaged bread space. Loblaw, Sobeys and Metro have said they’re co-operating with the federal agency’s probe but details of the files have been sealed by court order, limiting their comments on the matter.

David Paddon, The Canadian Press