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Sobeys aims to lure back cash-strapped westerners with lower prices and better deals. But why not just bring in the discount banner?
THREE YEARS AGO THIS MONTH, EXECS AT SOBEYS ANNOUNCED THE KIND OF deal that pundits tend to fall all over their Merriam-Webster's to describe. Blockbuster! Game-changing! Supercalifragilisticexpialidocious! In this case, any of these seemed appropriate. After all, the deal was Sobeys' takeover of Canada Safeway, one of Western Canada's biggest and most entrenched grocery chains and, arguably, the last big supermarket operator in Canada for sale. The price: a cool $5.8 billion.
Don't get me wrong. Sobeys got a lot for its money. Some 200 supermarkets on fabulous retail real estate, 199 in-store pharmacies, 62 gas bars, 10 liquor stores, four distribution centres, 12 manufacturing plants, a wholesaler out^t supplying independents (Macdonalds Consolidated) and, possibly, the most beloved private-label food brand west of President's Choice: Lucerne. Sobeys instantly became the No. 1 grocery chain in Alberta and, based on market share numbers, likely the biggest in the West-slightly inching out Loblaw.
The day after the announcement, CIBC World Markets analyst Perry Caicco (himself a former retailer) commented on the deal: "Now comes the hard part." It was a wry observation that summed up the problem of any big acquisition. Buying a competitor is easy; integrating it into your business is the real trick.
For Sobeys, this "hard part" continues. CEO Marc Poulin admitted as much, in December, during a conference call with ^nancial analysts in which he said Sobeys had underestimated the dif^culty in integrating Safeway. There had been issues around merging Safeway's IT system into Sobeys, problems with taking over fresh procurement from Safeway's former American parent, and distractions from internal rigmaroles, such as moving people from Sobeys' of^ce in Edmonton to Safeway's of^ce in Calgary.
Another problem: switching to Sobeys private-label Compliments products. Many westerners grew up on Safeway's Lucerne; Compliments wasn't nearly as well known. Poulin said Sobeys needed to do a better job convincing shoppers to try the brand. "Honestly, we have to say we were a little bit caught off guard by the fact that we needed to work harder with the...