Sobeys Braces for Inflation

STELLARTON, Nova Scotia — Sobeys [4] anticipates a return of food inflation in Canada in the next few months, though it isn’t sure what the impact will be, Marc Poulin, president and chief executive officer, told analysts here.

“The market in Canada is extremely competitive right now, so [what happens] when inflation hits and is actually reflected in consumers’ purchase patterns, we’ll have to wait and see,” he said.

“The consumer is still very fickle and she’s very prudent with every dollar she spends, so it’s a business you’ve got to win almost on a daily basis, and at the end of the day sales are a reflection of the quality of the offering consumers find when they shop the store.”

Poulin made his remarks during a conference call to discuss financial results for the fiscal first quarter, which ended Aug. 4.

Sales in the quarter rose 9.8% to $4.6 billion (U.S.), including $264.7 million related to the 236 Shell gas stations and convenience stores the company acquired in Quebec and Atlantic Canada during last year’s fourth quarter. Excluding that volume, sales for the quarter were up 3.6% and same-store sales rose 1.8%, while net earnings jumped 18.9% to $99.5 million.

Poulin said the increase in same-store sales did not include any retail inflation and was driven by “the continued promotional environment across the country.”

Among other comments during the call:

• Sobeys converted two more Price Chopper stores in Ontario to its FreshCo discount banner during the quarter, for a total of 70 stores in the province, Poulin said. In response to a question, he said Sobeys plans to limit that banner to Ontario “to make the most of our capital investment before moving on to other opportunities.”

Read more: Sobeys Buys 250 Fuel Centers [5]

• The company’s new automated distribution center in Terrebonne, Quebec, is scheduled to be fully operational by the spring, though it will take “a few quarters to settle in,” with no financial savings reflected in the company’s results until fiscal 2014, he noted.

• Despite new superstore entries in Quebec, Sobeys IGA and IGA extra stores maintained an edge because they are the market leaders in the province, Poulin said. The company ran a pilot cross-promotion between the stores and Shell during the quarter, which he said was “very successful,” and it is looking for similar opportunities going forward.

• Poulin said he intends to maintain the same strategy that was pursued by his predecessor, Bill McEwan: “To continue to build for the long term; to continue to improve on cost structure and productivity; and to enrich the shopping experience of our customers.”

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