Sobeys: “There's a reason we're outperforming the competition and it ain't all COVID-19”

Date : 11 March 2021

Stewart Samuel

Program Director - Canada

We review Sobeys’ third quarter performance, and the factors underlying its continued strong performance, including its focus on data and analytics and strategic investments into the discount, supermarket and ecommerce channels.

Key numbers Q3:

  • Total sales increased by 9.7% to $7.0bn
  • Same-store sales increased 10.7%
  • Ecommerce sales increased 315%
  • Net earnings increased 46.3% to $176.3m

Focusing on market share gains as it laps tough comparables

While Sobeys’ strong performance in Q3 was underpinned by the COVID-19 pandemic and the elevated demand the business continues to experience, the retailer's president and CEO, Michael Medline, stressed that other factors were also important. Last May, it launched its three-year Project Horizon growth strategy, building on its previous three-year Project Sunrise turnaround plan. Despite the pandemic, the business has been able to make significant progress across several initiatives. In the current quarter, with Sobeys facing tough comparables from last year, the focus will be on making market share gains, rather than comparable sales growth.

”There's a reason we're outperforming the competition and it ain't all COVID-19.”

Strategic importance of data and analytics

One of the central aims of the growth plan was to drive improvements in store operations and merchandising to enhance the customer value proposition. The company has placed data and analytics at the heart of this, including its efforts to optimise promotions. This contributed to a strong improvement in margin during the quarter. Its buyers and suppliers have designed new processes and tools to improve promotional planning, and while significant progress was made in the quarter, the retailer views this as one of its biggest opportunities to drive business performance.

Source: IGD Research

Format investments

Strategic format investments are also a critical element of Project Horizon. These include its supermarket format, Farm Boy, its FreshCo discount format and improvements to its broader network. Around half of its $675m Capex will be spent on new stores and remodels. This includes the expansion of FreshCo in Western Canada, with 23 stores open and a further 14 planned, and the roll-out of Farm Boy in GTA, currently at 36 locations, with six more locations identified. The business also remains on-track to renovate 30% of the store network over a three-year period, with current remodels meeting or exceeding sale forecasts.

Building a profitable grocery ecommerce model

Its partnership with Ocado continues to gain momentum. Following the launch of the Voilà by Sobeys service in the Greater Toronto Area (GTA) in June last year, the retailer has launched a curbside pickup service in other regions. These include Nova Scotia, where the Ocado model will not reach and Alberta, a region where eventually the model will switch to Ocado. It has also launched the first spoke location in the GTA and recently completed the construction of its second CFC in Montreal. Ocado is currently building out the internal grid for this.

Extending the online range

The retailer views its partnership with Ocado as a long-term play, which when scaled, will be the most profitable approach to grocery ecommerce in Canada. Over the last quarter, a further 1,000 items have been added to the offer, including a range of meals with restaurant chain, Oliver & Bonacini. It continues to work with its supply partners to extend this further. The focus is on ensuring consistent supply from its partners, so that it can maintain its key metrics of minimal substitutions and on-time, in full orders to its customers. For some suppliers, this remains a challenge given the elevated demand and supply chain constraints driven by the pandemic.

Retail Analysis subscribers: view our new report, Ocado strategic outlook, as we review Ocado's performance, the impact of COVID-19, its strategic priorities, and the implications for manufacturers.

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