Safeway parent plans to cut millions in makeover

CEO announces transformation plan with bulk of savings not from job cuts

The owner of Sobeys and Safeway will make “significant” cuts to its costs and its workforce in a bid to overhaul the beleaguered grocery retailer.

Michael Medline, the former Canadian Tire chief executive hired in January to help turn around Empire Co., announced a threeyear transformation plan Thursday aimed at saving the company $500 million a year by the end of fiscal 2020.

The restructuring will result in one-time costs and an unspecified number of layoffs as Canada’s second-biggest grocery retailer tries to initiate a seismic shift in how the company operates, folding its regional management hubs into a more centralized national structure, simplifying its processes and decreasing procurement costs in order to reduce the cost of goods sold.

“We are going to have a smaller workforce in order to be competitive,” Medline said. “We are the high-cost competitor, and you don’t have to be too good in business to know that that is not the position you want to be in.”

The news comes three years after a badly botched integration of the Safeway chain by former management, leading to dwindling profits and sales, $2.9 billion in writedowns and some fed-up western Canadian customers who gave up shopping at the retailer.

Same-store sales at Sobeys, a critical measure of retail performance, have fallen for four straight quarters and its overall revenue has dipped in the last three, to $5.89 billion from $6.03 billion in the third quarter ended Feb. 4, where adjusted earnings plunged 58 per cent.

While there will be “significant” cuts spread across all of its offices, Medline said, the bulk of the $500 million in annual savings will not come from job cuts, he said, and the retailer intends to keep the scaled-down regional offices open.

Stellarton, N.S.-based Empire has 4,300 “back stage” staff in a workforce of 125,000 employees across the country, and regional offices in Dartmouth, Montreal, Mississauga, Calgary and Victoria. The layoffs will affect office staff only, Empire said, with front-line store employees and distribution centres remaining intact.

Medline said Empire needs to work on productivity initiatives, wipe out duplication and simplify its Byzantine processes with vendors in order to better leverage its purchasing scale.

“Vendors have to deal with us in a way that is so complex,” he said. For example, Empire deals with its packaged grocery vendors and non-merchandise suppliers — suppliers of its office paper or the plastic wrap on produce — in a piecemeal fashion across the country, Medline said, sourcing “different packaging from different vendors at different costs” in every single region Canada.

Beyond the push to become more focused, Medline is trying to determine how to repair the damage with erstwhile customers. In its struggling western Canadian division, integrating the supply chain and IT functions led to empty shelves, and customers were frustrated after Sobeys axed Safeway’s private label food brands and replaced the retailer’s legacy loyalty program with Air Miles.

“By late summer or early fall we will have a strategy in place to thrill our customers and win back market share,” Medline said.

The announcement “says that Sobeys is definitely not giving up on Safeway,” said Sylvain Charlebois, agriculture expert and dean of management at Dalhousie University, citing a culture shift between “old Sobeys” and new Sobeys.

“The old Sobeys was about running a decentralized model, unlike Loblaw, which is very centralized.”

By late summer or early fall we will have a strategy in place to thrill our customers and win back market share.