Sobeys, Safeway parent seeks cost-cutting ‘leverage’

Empire Co., the parent firm for about 1,500 grocery stores across Canada, plans to restructure from a regional to a “largely national” operation cutting $500 million in annual costs by the end of 2020.

Nova Scotia-based Empire — whose stores operate under brands including Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, and Lawton’s — on Thursday announced what it called “Project Sunrise,” described as a “significant cost reduction.”

The $500 million in annualized cost savings is expected to come from “collapsing multiple, independent regions into a largely national, functionally-led structure” led by a reorganized management.

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The new structure, Empire said, “will simplify the way the company conducts business” but will also result in a “reduced workforce,” affecting “office staff only” rather than front-line store staff or distribution centres.

Also, at the supply end, the company said it will be “simplifying” how it “collaborates with vendors while leveraging its purchasing scale as a $24 billion national company.”

“We have an aggressive goal to transform our organization, better serve our customers, empower our employees and assuredly move from defense to offense in the market,” CEO Michael Medline said in the company’s release Thursday.

“The future Sobeys will operate with a simpler, leaner structure, more efficient core processes and tools and will better leverage its $24 billion national scale.”

The company described its three-year plan as “a clear response to Empire’s business performance over the past 18 months.”

Medline, releasing the company’s third-quarter results in March, said the results “are not where they need to be,” posting net earnings (net of non-controlling interest) of $30.5 million on $5.89 billion in sales, compared to a $1.37 billion loss on $6.03 billion in the year-earlier period.

In its year-end ledger last June, Empire booked a net loss of $2.13 billion on $24.62 billion in sales, compared to $419 million in net earnings on $23.93 billion in fiscal 2015.

The company last June cited “significant integration, operational and reorganizational challenges” coming out of its 2013 takeover of Canada Safeway, as well as a “difficult economic environment mainly in the Alberta and Saskatchewan markets.”

Medline said Thursday the company “will focus on making these bold changes while at the same time ensuring we stabilize performance, particularly in Western Canada.”

One-time costs for “severance, relocation, retraining, minor systems development, and third-party support” are expected to appear in the company’s ledgers starting in its fourth fiscal quarter this summer, with the “majority” expensed in the first half of fiscal 2018.

More specifics on those one-time costs are expected next month.

Medline said Empire plans on “balancing potential risk to our unique Quebec and discount businesses by keeping them distinct, while harmonizing the way they operate nationally.”

Further, he said, the company will be “ensuring focus on the core grocery business by separating out related businesses, like pharmacy and fuel, into a distinct functional structure.” — AGCanada.com Network

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