Empire’s $2-billion annual loss is a sign that its Sobeys supermarket chain is coming under increasing pressure from cost-cutting competitors and may be losing its way, says an industry analyst.
The parent company of Stellarton-based retailer Sobeys Inc. announced a $943-million quarterly loss last week for an annual loss north of $2 billion, largely attributable to its Safeway acquisitions in Western Canada.
“The issues that they have seem pretty deep,” said Kevin Grier, a food industry analyst based in Guelph, Ont., by telephone Monday.
He said the competition is intense in the supermarket industry as Wal-Mart and Costco continue to eat into market share.
Sobeys needs to better position itself against its competition, he said.
“What is (it that makes) Sobeys a destination?” said Grier. “How are you going to convince people that you are a place to go?”
For example, he said Loblaws has a well-known President’s Choice label that many customers associate with value but Sobeys has not done as good of a job of communicating the value of its Compliments brand.
Canadian shoppers are looking for value, Grier said.
Sobeys acquired the Western Canadian-based Safeway grocery chain roughly three years ago in a multi-billion dollar deal to expand the company’s reach across the country.
Although sales rose by $690 million last year, Sobeys’ same-store sales decreased 0.2 percent under the pressure from cost-cutting competitors such as Walmart and a downturn in the economies of Alberta and beyond. The company also posted a $1.3-billion impairment charge because of the financial pressure.
“For the last year and half, grocers have had really good margins,” Grier said.
But Sobeys didn’t take advantage of those good times, he added.
“That’s not a good thing,” said Grier.
Sobeys didn’t respond to a request for comment but its president and CEO acknowledged the challenges in a press release.
“The previously reported challenges in Western Canada that have had a negative effect on our results over the past three quarters deepened through the fourth quarter with impacts felt across additional banners in the West and which have led the Company to incur an impairment charge of $1.3 billion dollars in addition to the charge recorded in the third quarter,” said Marc Poulin, president and CEO of Empire Company Limited.
“Management is also seeing early evidence of a softening sales trend in other regions of the country. Although management remains focused on reversing these negative trends by continuing on our core strategies of cost reduction, network renewal and relevant pricing for our customers, the stabilization of our business will take time.”