Consolidation a key concern with Co-op Atlantic's potential exit from food and gas

The Canadian Federation of Independent Grocers (CFIG) will seek to make the trend of consolidation in the grocery industry–most recently seen in the plan by Co-op Atlantic to sell its grocery and gas business to Sobeys–an election issue.

Retail consolidation “is having an impact right across the country and that’s what we’re trying to stress to people,” says Gary Sands, CFIG’s vice-president of public policy.

Last week, the board of directors of Co-op Atlantic recommended its member- owners ratify a plan to sell the co-op’s entire portfolio of 173 food and gas stores to Sobeys. Members have until May 12 to vote.

Retail consultant Peter Chapman of GPS Business Solutions in Bedford, Nova Scotia says the proposed Co-op Atlantic-Sobeys deal comes as no surprise, as the co-op was struggling to achieve economies of scale given its mix of a few traditional-sized grocery stores and many convenience stores.

Chapman says Sobeys-owned food distributor TRA Atlantic will likely handle distribution for the smaller stores “and they could probably do it more efficiently than co-op ever could.”

He says co-op currently has an estimated 4 to 6% share of sales in the grocery market in the Atlantic provinces, “but it’s tough because it’s spread over a lot of stores over a lot of geography.”

Paul King, general manager of the Tignish Co-op in Tignish, P.E.I., reassured members in a post on his store’s Facebook page that “Tignish Co-op is owned by its membership and not Co-op Atlantic” and that their share capital and investment in the co-op will not be affected by the deal.

“We will have a new supplier in food and gas, so our peanut butter will come from another wholesaler. Our Co-op name and logo will not change; we will not become a Sobeys. We are Co-op, we are Tignish Co-op,” reads the post.

Meanwhile, a report by research firm IGD Retail Analysis says the proposed Co-op Atlantic-Sobeys deal “demonstrates the continued appetite among the major retailers to continue adding scale to their operations.”

Although the trend should continue in Canada, limited opportunities remain for large-scale deals. Future deals will likely focus on such growth sectors as the ethnic market and drugstores, the report says.

Sands says the Federation will be communicating with members of parliament and all candidates in the upcoming federal election about the impact that consolidation has on independent grocers, the farm sector and on the supply chain.

The CFIG has already discussed the issue with the Minister of Industry, Competition Bureau and the Liberals and NDP.

Sands says Canada should follow the Australia and U.K. route and develop codes of conduct that provide guidelines on retail consolidation in a marketplace with fewer players. Like the recent code of conduct developed for the credit card industry, it would allow for fair and transparent practices.

While there has not been much scrutiny over the grocery industry for many years, “there is starting to be recognition that we might have a problem,” Sands says.