Sobeys has launched a strategy aimed at trimming down its food line in favour of fresh produce, which will be supported by aggressive marketing and a cheaper prices than items found in the company’s non-fresh groceries and home-improvement category.
The average grocery cart at Sobeys stores carries around 100 grocery items, nearly one-third of which are food. The next largest chunk are beverages, while tobacco is the fourth most common item.
The shift comes at a time when Canadians are increasingly watching their food spending, abandoning restaurants for home cooking and reducing their physical activities such as exercise, experts say. At the same time, according to the University of Guelph, Canadian food expenditures will increase by 20 per cent by 2040, with the largest and fastest growth in per capita food expenditures in the west.
“About one-third of every cart is food,” said Alastair Holman, CEO of Sobeys. “The problem with food retailers is that they’re incredibly competitive and all do their price in the same way. And there’s not a lot of variety in the products that are offered.”
The new strategy allows Sobeys to clear out its stock of unprofitable items such as cigarettes, convenience and grocery alcohol, along with food service items such as coffee, tableware and fast food.
“We’re now focusing more on the profit margin side,” said Andrew Gilbert, Sobeys’ chief financial officer. “Our proposition on food isn’t good. Our proposition doesn’t grab consumer attention. So, in one fell swoop, we are having an impact on the rate of change in the food business.”
Along with a 20 per cent increase in grocery sales, Holman said, the company expects a 10 per cent increase in the rate of increase in food sales. He said some items such as fresh produce and baked goods had actually seen a marginal decline in sales recently.
Although Canadian consumers have been seeing increases in food expenses for years, Holman said grocers should work to reduce the rate of spending growth. He pointed to how discounters like Aldi and Lidl have made deep inroads into grocery markets since making their Canadian debuts in 2010 and 2015. As a result, this year the discounters will account for over 8 per cent of grocery sales, up from 5 per cent in 2011, according to a recent report by market researcher Nielsen.
“The emergence of these very low price, very dynamic, very relevant retailers, their strategy is to rapidly drop the price of goods and get people to compare apples to apples,” Holman said. “They find that people are not willing to pay an additional 20 cents for a loaf of bread.”
He said that Sobeys would welcome a discounter entering its market. But like the discounters, he said, the company was focused on improving its own quality while reducing its expense.
“Let me guarantee you one thing,” he said. “When we have a more aggressive discounter in our marketplace, it’s not a bad thing for us because we tend to win.”
The strategy also comes as Canadian grocers have been dealing with the increased tariff on softwood lumber, which is expected to hit grocers hard in 2019. Holman said the company has been paying close to 15 per cent more for lumber and that when it comes to negotiating tariffs, “there’s no higher ball to get in the house than I as a Canadian executive, who is a leader of a company that’s an exporter.”
But he said that the “turbulence and reality of trade has underscored what we believe for over a decade: the importance of our business in the great Canadian marketplace.”
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