Michael Medline came out firing in his first quarterly earnings call since taking over as CEO of Sobeys Wednesday, calling earnings at the troubled Canadian grocer “nowhere near acceptable,” its structure “Byzantine” and communication with the consumer “sorely missing.”
Medline, a former Canadian Tire executive named president and CEO of Nova Scotia-based Sobeys and its Empire Cos. parent in January, also outlined a basic plan to address those issues but warned it would take time.
“There are a myriad of opportunities to improve our company and our results,” he said. “It just takes some time, hard work and plain old-fashioned results. Getting these things right will improve our results and give us the underpinnings to innovate, to thrill our customers, and to beat the competition.”
In the fiscal third quarter ended Feb. 4, Sobeys did little of those things, as comparable-store sales declined by 3.7% and overall sales fell by 2.3% to about $4.4 billion (U.S.). Adjusted net earnings of about $25.9 million (U.S.) fell by 58.1%. That continued a trend dating back more than a year for Sobeys, which has yet to overcome the aftereffects of a botched integration of Safeway Canada in Western Canada, and has shown relatively soft sales elsewhere in its network, impacted by falling prices and heightened competition. Comps excluding Western Canada were down by 2.3%. Those challenges led to the departure of CEO Marc Poulin at Sobeys last summer. Medline then replaced interim CEO Francois Vimard.
In the conference call Wednesday, Medline exhibited an anxiousness to break with the past with feisty candor. In a question-and-answer session with analysts, he facetiously declared he would no longer use the phrase “simplified buy & sell” referring to his predecessors’ name for an EDLP go-to-market strategy rolled out to the chain, preferring instead to call it “pricing.” When asked by an analyst to describe what he learned from speaking to shoppers in Western Canada he began by saying, “we only have an hour here.” Have volume trends in Western Canada stabilized? “Don’t pop the champagne corks yet.”
Medline said he has identified four basic areas around which he will devise a formal strategy: Simplifying the company’s structure; reducing costs; building brands; and improving in Western Canada specifically. Further details of the plan would be revealed in coming months, but he said these four areas came up over and over in his initial assessment of the company.
“I can tell you straight up that our highly regionalized structure is hindering our ability to make decisions [and] use our scale,” he said.
He said work has already commenced to reduce costs, focusing initially on “low-hanging fruit.”
Improving branding, marketing and communication at Sobeys was “crucial,” to improve sales, he added, remarking that it was likely he would move on from Sobeys’ “Better Food for All” platform among other changes.
“I am not going to mince my words with you. I am disappointed in how we have approached our customers. Our ability to understand our customers and effectively communicate with them has been sorely missing,” he said. “And interestingly, it's not that we don't have data or don't possess an ability to crunch this data. In fact, we're good at that. We just haven't emphasized brand customer marketing. And this has been a significant factor in leading us to the top-line issues we are now seeing.”
He also characterized performance at Safeway in Western Canada as a marketing issue in part, saying the integration, even if well intentioned, displayed a lack of sensitivity to Safeway’s brand and shoppers.
“In my experience with different banners when you take away what's dear to customers, there is a great impact, and it's a lot easier to lose customers than it is to win them back,” he said. Research of Safeway shoppers indicates “we really let them down, but [that] there's a latent loyalty to Safeway in the West that we have to be able to recapture,” he added.
Medline added he has not yet made a decision on whether the company would try and expand its FreshCo discount banner to Western Canada, but acknowledged it was among the possibilities.