Technology Pays Off at Sobeys

Investments in technology have begun to pay off for Sobeys. The retailer cited improvements in overall efficiency, forecasting, promotions and pricing all resulting from a program of systems and processes investments in recent years for driving higher operating profits during the fourth quarter and fiscal year that ended May 3. The systems, in and of themselves, do nothing,

STELLARTON, Nova Scotia — Investments in technology have begun to pay off for Sobeys here.

The retailer cited improvements in overall efficiency, forecasting, promotions and pricing — all resulting from a program of systems and processes investments in recent years — for driving higher operating profits during the fourth quarter and fiscal year that ended May 3.

“The systems, in and of themselves, do nothing,” Bill McEwan, president and chief executive officer of Sobeys, said in a conference call discussing financial results for Empire Cos., Sobeys' parent company. “All they do is enable people to have better information and better tools that improve the accuracy of their forecasting, the timeliness of deliveries, the service to the stores, the pricing decisions they make [and] the promotional activities they measure. It's the combination of a whole number of things that the systems enable us to do better.”

Sobeys reported operating earnings in the quarter of $102.4 million (U.S.) — an improvement of 39.1% from the same period a year ago — on sales of $3.42 billion. Operating margin improved to 3.06% from 2.31% in fiscal 2007's fourth quarter.

McEwan said Sobeys has rolled out the systems and processes improvements in all but its Quebec division. That implementation, he said, would wait as the company learns from its installation elsewhere. He said he expects improvements would continue as operators get more familiar with the new systems.

“Our service levels are better than they were before we implemented the system,” he said. “The timeliness and accuracy of the information is greater. It gives merchandisers and operators greater confidence in the data and information they have, so they can make decisions on what they need to do in the marketplace.”

Sales at Sobeys improved 7.3% for the quarter — and 5.6% for the fiscal year to $13.5 billion. Same-store sales grew by 2.6% for the quarter and 2.8% for the year. The acquisitions of the Thrifty Foods chain last year and the Achille de la Chevrotiere companies in 2006 increased annual sales by $454 million.

McEwan said the company was “quite pleased” with its recently hatched Urban Fresh format, particularly in Toronto where the company operates 13 such stores. Sobeys recently expanded the concept to cities in Western Canada, with more new locations to come.

McEwan said Sobeys' Urban Fresh stores — which range from 4,000 to 30,000 square feet — were “quite different” than the Fresh & Easy stores opened by Tesco in the Western U.S., saying Sobeys' model is more focused on being the primary shopping venue in their particular neighborhoods.

“We're there to be the best food retailer for the individual markets we serve, so there's a tremendous amount of [customizing] done store-by-store. We recognize that adds a little bit of complexity and cost, but it adds relevance too,” he said. “We don't have a one-size-fits-all, even when it's a small-footprint approach; we're approaching it on an individual community market basis.”

Empire Cos., the holding company controlled by members of the Sobey family that also includes real estate and other investments in addition to the Sobeys chain, reported net income of $247 million for the fiscal year, an increase of 21.3%.

39%
Gain in operating earnings in the fourth quarter.

Source: Sobeys