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Store closures good in the long run, says Sobeys CEO

Closures will impact future sales to the tune of $400 million, company says

Sobeys-closure14

Closing weaker Sobeys stores will improve the quality of its overall operations and financial results, said Marc Poulin, president and CEO of Sobey and its parent company Empire Co, in a conference call yesterday.

Empire Co. announced earlier in the day it would be closing about 50 underperforming Sobeys to improve its net earnings.

About 60 per cent of the affected Sobeys locations will be in Western Canada, while the rest will be spread out across the country, said Poulin.

Other facilities and plants could also be closed once further reviews are completed.

“Clearly, we have learned a lot from this process and will assess our options with a view to do what is right for the business,” Poulin said, after the Nova Scotia-based company released sharply lower quarterly results on Thursday. “After all, it’s all about maximizing the value to the shareholders.”

Sobeys did not say how many employees would be laid off and did not release a full list of which stores are closing. Canadian Grocer has compiled a partial list (see link at bottom of this article).

The 50 shuttered stores represent 1.5 million square feet of floor space, or 3.8 per cent of Sobeys total gross square footage.

Rationalizing the store network will “improve net earnings as a result of cost savings; however it will result in a reduction in future sales of approximately $400 million, or 1.9 per cent of total sales,” the company said in a press statement.

“`Rapid square footage growth has crimped the Canadian market, and Sobeys has been the first to acknowledge that,” said CIBC analyst Perry Caicco in a note.

Sobeys said that restructuring costs related to the store closure would add up to $169.8 million, of which $137.1 million would be for severance pay, site closing and other costs.

The retailer paid $5.8 billion for Safeway and its 215 supermarkets in Western Canada last year. Later, 30 stores were sold to rival chains in order to satisfy Competition Bureau requirements.

“Stores that are underperforming do require an awful lot of management attention,” Poulin told analysts. “As hard as it is a hard decision to take, it will allow us to focus attention on stores with more potential.”

UFCW Canada, the union that represents employees at more than 350 Sobeys, Safeway, IGA and Freshco stores across the country, said in a statement that it will do everything it can to protect the rights of workers affected by the closings, including enforment of seniority rights and other safeguards in their collective agreement.

“Any and all restructuring must be done in accordance with the terms of the collective agreement and should reflect the fact that these members have helped build Sobeys as a successful company,” said Paul Meinema, national president of UFCW Canada, which also represents workers at Sobeys distribution centres in Ontario, Quebec, Manitoba, Alberta and Nova Scotia.

Sobeys expected to find $200 million in cost savings over three years through its purchase of Safeway.

Some cuts have already been announced. In March Sobeys confirmed that it was closing Safeway’s Lucerne ice cream and cheese making plant in Winnipeg and cutting 50 jobs at regional offices in Calgary and near Ottawa.

In Ontario, Sobeys would close either its Whitby or Milton warehouse once upgrades were completed to the company’s automated distribution centre in Vaughan.

Other manufacturing facilities acquired from Safeway are also facing a review for their productivity, Poulin said.

Canada’s major grocery chains have grappled with intense competition from discounters such as Walmart and other retailers selling food, such as Costco and Shoppers Drug Mart Mart.

In major cities, a growing number of ethnic supermarkets have also taken market share from conventional grocers. Recently, a Sobeys store was closed in Scarborough, Ont. Its space was quickly snapped up by an ethnic independent, Fusion Supermarket.

Nova-Scotia-based Empire reports fourth-quarter adjusted net earnings from continuing operations of $131.3 million, or $1.42 per diluted share, compared with $95.7 million, or $1.40 per diluted share, in the same quarter of last year.

Sales were $5.94 billion, up $1.68 billion, or 39.5 per cent. The jump was largely due to additional sales from the Safeway purchase.  Excluding Safeway, sales rose 2.2 per cent. Same-store sales rose 0.2 per cent in the quarter.

Sales for the year (52 weeks to May 3) totalled $20.99 billion, an increase of $3.59 billion, or 20.6 per cent. Excluding the additional sales from Canada Safeway of $3.2 billion, Empire’s food retailing sales rose $394.1 million, or 2.3 per cent. Same store sales for the year were flat.

Here is a partial list of store closures Canadian Grocer has compiled based on our research and that of other publications. It will continue to be updated as more information comes available.

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