TORONTO — Seeing strawberries out of stock again was the final straw for long-time Safeway shopper Kevin Wipf.
The Calgary resident is one of hundreds of consumers who are still taking to social media to complain about the grocer in the wake of Sobeys Inc.’s messy takeover of the Western Canadian grocery chain — even though the acquisition happened close to three years ago.
“I have to say I’m getting fed up ever since you were bought by Sobeys,” Wipf wrote in his May 30 missive. “A lot of the stuff in the flyer you never have. Prices keep increasing. …I want to keep supporting Canadian companies, but you are sure making it difficult!”
Sobeys is well aware of the difficulties. On July 8, the retailer’s owner Empire Co. Ltd. removed Marc Poulin as chief executive, a week after the Stellarton, N.S.-based company posted a staggering $942.6 million loss due to the continued fallout from its botched Safeway integration, which, aside from annoyed consumers complaining about out-of-stock products, included logistical snafus, systems integration problems and disgruntled staff members on both sides.
Wipf’s complaints are particularly noteworthy because he is exactly the type of customer that grocery chains are keen to hold on to: a very loyal one who didn’t shop around between the big chains based on competing sale prices. He sincerely wants to continue shopping at Safeway, he said, and only recently gave up on it as his primary grocer.
“If you are getting good service, you don’t mind paying a little more for better quality product,” Wipf said in an interview. “But I would say as soon as Sobeys started taking over, you could tell the difference, little by little. There was no stock.”
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On the day Wipf made his online complaint, he recounts, Safeway had advertised strawberries for $2.49 a pound.
“I watch my prices,” he said. “Normally in Calgary, those would run from $3.49 to $4.99. So I went in, and there were no strawberries other than organic, and those were over $5. I asked a guy stocking shelves, and he said that his store didn’t even get any.”
Though he took to Facebook to vent, Wipf doesn’t believe Safeway — and Sobeys by extension — will be able to do much to dig itself out of its predicament. Many industry experts also believe the retailer’s problems go well beyond the issues that interrupted the steady flow of store stock. There was also the axing of a much-loved loyalty program and the discontinuation of Safeway house-branded items in favour of Sobeys’ branded goods.
Todd Korol for National PostLong-time Safeway shopper Kevin Wipf has been frustrated with the store since Sobeys took over.
“Empire keeps blaming price competition and oil woes for the disastrous losses of Safeway in Western Canada, but the reality is the Safeway stores are poorly managed by Sobeys,” said one consumer who spoke with the Financial Post and sent recent photos of empty shelves taken at an Edmonton Safeway store.
“Sobeys’ system is to only stock product three deep, whereas Safeway had much deeper inventory and would pay staff to keep shelves replenished. Long-time Safeway shoppers like me have been forced to move to Save-On or Superstore. We didn’t want to leave, but did so because of all the changes made to Safeway.”
The extent of the ongoing damage became devastatingly clear in the fourth quarter.
A lot of the stuff in the flyer you never have. Prices keep increasing. …I want to keep supporting Canadian companies, but you are sure making it difficult!
In the period ended May 7, same-store sales at Sobeys’ Western Canadian stores, excluding fuel, fell 3.6 per cent, helping to drag down overall same-store sales at Sobeys by 1.8 per cent. During roughly the same period, Loblaw Cos. Inc.’s same-store food sales rose 2.6 per cent, excluding gas, and Walmart Canada Corp.’s rose 6.7 per cent in the first quarter as the retailer grew its grocery market share.
Empire took a $1.3-billion impairment charge in the quarter, just months after it took a third-quarter writedown of $1.59 billion related to the value of Safeway. In the wake of Poulin’s exit, the company has continued to promise that it is improving its logistics and it has launched a promotional cost-cutting program to lure former Safeway customers back to its stores, but that hasn’t stopped all the complaints.
National Post file photoA recent photo taken by a customer at an Edmonton-area Safeway store.
Sobeys’ current hardships contrast starkly with the celebratory response to the Safeway takeover when it was announced in June 2013.
Empire was hailed as the victor in a battle with Metro Inc. to extend their store networks into Western Canada at a time when the big grocery chains were duking it out in a stiff price war since the only growth to be had was by stealing market share from competitors.
Calling the deal the “strategic coup of the year,” TD Securities analyst Michael Van Aelst said Sobeys stood to reap numerous efficiencies as it scaled up.
Industry experts still agree that Empire’s deal looked strategically sound at the time, especially since Loblaw soon announced its own blockbuster decision to buy Shoppers Drug Mart Corp. and Walmart Canada was aggressively expanding its food offerings to get ready for Target Corp. to open its first Canadian stores.
“The Safeway acquisition made sense from a numbers perspective: quantitatively, it was a good deal,” said Sylvain Charlebois, a grocery and agriculture expert who is dean of management at Dalhousie University in Halifax.
But it didn’t take long for the first consumer grumblings to begin after the Safeway deal closed in November 2013. By April, Sobeys had eliminated a Safeway loyalty program that many customers liked as part of its efforts to integrate the two companies systems — a task that included everything from sourcing and technology to employee and customer relations management.
National Post file photoA photo taken by a customer at a Safeway store in Edmonton.
Consumers also began to complain about out-of-stock goods, especially when Sobeys switched Safeway’s produce supply, which had been controlled by its U.S. parent.
Meanwhile, bringing in Sobeys’ SAP back-office software led to technical hurdles and frustrated employees. Employee sentiment further declined after Sobeys centralized its Western Canadian head office functions to a building in Calgary from regional offices in Victoria, Edmonton and Winnipeg, and the issues continued to plague the business throughout 2015.
“There has been disruption across the whole way we operate, associated with the adoptions of new procedure (and) processes, and it had an impact on the operation as a whole which means that obviously service levels were also impacted,” Poulin said during the retailer’s second-quarter conference call last December.
“People have been distracted from customer-facing activities towards more internal-facing activities as they adopted new processes, and we’re not going to say everything went smooth on everything.”
Sobeys also assumed, perhaps incorrectly, that Western Canadians were indifferent to Safeway’s in-store brands, or at least neutral enough not to mind a phased-in switch to Sobeys’ house brand, Compliments, a situation that was exacerbated by corresponding out-of-stock packaged goods throughout the change.
“The customer base at Safeway was very loyal to the stores,” Charlebois said. “And Sobeys got rid of a lot of the things that those consumers really cared about.”
The customer base at Safeway was very loyal to the stores. And Sobeys got rid of a lot of the things that those consumers really cared about.
Poulin, who had steadily climbed Sobeys’ corporate ladder after vitally strengthening the retailer’s business in Quebec a decade ago, might have been focused too intently on potential synergies.
“Marc Poulin, as an actuary, brought the value of analytics and big data into the grocery business,” Charlebois added. “His whole focus was really on the numbers at Sobeys, but that was really his downfall. I think executives underestimated how asynchronous those two corporate cultures were.”
To his credit, Poulin was upfront about the integration problems, but remained upbeat about rising consumer acceptance of the new private label and attempts to improve stock levels, though he admitted the issues had alienated customers.
“Produce procurement … left a sour taste on some customers and we have to regain their confidence around our produce offering,” Poulin said during the same conference call.
At the same time, national competition had only stepped up. As the oilpatch economy dwindled, consumers began buying more goods at discounters such as No Frills and Walmart, another disadvantage for Sobeys in the West since it does not operate a discount division there. In the East, it operates the discount brand FreshCo.
Brent Lewin/BloombergSobeys operates discount brand FreshCo in the East, but does not have any presence in the West.
Keith McIntyre, chief executive of marketing agency KMAC Group, believes Sobeys’ biggest mistake was failing to focus on merging the two retailers’ cultures in a complementary way. When things go wrong, he said, the acquiring company too often has made an incorrect assumption that all of its processes are superior to that of the one it is acquiring.
“When you take two distinct identities, even if they are in the same industry, you have got to create and evolve a new identity, and you just can’t rush this stuff, ” McIntyre said. “I don’t see that as having happened here. Technology can put you out of business if you don’t do it right. It took Loblaw the better part of a decade to integrate and fix its systems” after the country’s largest grocer acquired the Provigo banner in 1998 and began trying to harmonize disparate IT platforms across its store network.
Charlebois also believes Sobeys made sweeping changes to the business too quickly.
“I don’t think Sobeys gave themselves enough time to think things through with the integration processes, like Metro did (when it acquired) A&P in 2005,” he said. “Five, six years after they were still working on the integration. It seems that Sobeys expedited the execution of the integration.”
Metro certainly seems like the more prudent player of the two, even though it was also reportedly interested in acquiring Safeway in 2013.
If they don’t have it together, you have to go somewhere else. You can only put up with so much.
Instead, Metro has boosted its business by improving its food offerings, reorganizing its Ontario grocery store network by adding more of its discount Food Basics banner to the highly price-competitive market, and making tuck-in investments such as the Adonis ethnic grocery chain and bakery chain Première Moisson, both based in Quebec.
Customers have favourably responded to the in-store changes, boosting Metro’s sales and margins.
In April, Metro released the strongest financial results of the big three grocery chains, with same-store sales rising five per cent and year-over-year profit climbing more than 10 per cent.
Sobeys can only dream of such figures for now, since it will be challenged just to retain existing Safeway customers, let alone win back those who were alienated or new ones.
“This is a competitive industry and there are other (grocery stores) who will happily take that business,” McIntyre said, adding it is harder to win back former customers you have angered than it is to win them over in the first place.
One of those former customers is Wipf, who finally made the decision to take the bulk of his business away from Safeway, and now only goes there to pick up the occasional convenience item.
“We do Costco now, and even more Walmart now,” he said. “You like to support the Canadian companies as much as you can. I am very loyal. You build a relationship with staff there and you don’t want to stop going there. But if they don’t have it together, you have to go somewhere else. You can only put up with so much.”
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