Last week, Sobeys reported disappointing Q3 results. Sales for the third quarter decreased 2.3% to CAD5.9 billion. Same store sales including fuel decreased 3.1%, versus internal food deflation of 2.2%.
This was Sobeys first earning report after hiring Michael Medline, former Canadian Tire Executive, as CEO and President. During the Q3 conference call, Medline acknowledged that customer loyalty declined after its Safeway integration. He stated that this was largely driven by placing too much focus on pricing, versus identifying and communicating the right value proposition.
The call also served as a platform for Medline to outline his four key focus areas for Sobeys to improve its lackluster business performance and drive sustainable growth (click here to download the table shown below).
Without revealing details, Medline reassured the investors that Sobeys made some significant progress towards getting the price/value offer right and in turn did stabilize the profit margins. He asserted that they are moving away from their everyday pricing “Simplified Buy and Sell” initiative, commenting that it is “mostly behind” them.
However, reviving Sobeys business performance and putting it back on a growth trajectory will be an uphill climb. The retailer is still dealing with the negative impact of merchandising and promotional strategies in Western Canada and the inability to effectively communicate the right value proposition to its customers. It is unlikely that these initiatives will reap rewards by next quarter.
From attending focus groups in the West to visiting stores, Medline is leaving no stone unturned to win back customers and give them a compelling reason to shop at their stores. They commented that they are evaluating expanding FreshCo outside of Ontario, but they’re focused on stabilizing their performance before investing in a significant format expansion. Looking ahead, we will continue to monitor how Sobeys progresses on its journey to drive customer traffic and address top and bottom line performance.
To assess Sobeys direction further, join us at the Canadian Conference September 13, 2017 in Toronto.