STELLARTON, Nova Scotia — In a move providing a platform for growth in British Columbia, Sobeys here last week reached an agreement to acquire Thrifty Foods, a 20-store independent based in Victoria, British Columbia, for around $249 million (U.S.).
The deal, which is scheduled to close in September, pairs Sobeys with an independent with strong business and customer appeal on Vancouver Island, but one that has struggled to grow on the mainland. But it's the struggling mainland stores — and Sobeys' ability to use them as a springboard to further growth there — that are key to the deal, observers told SN.
“The two Thrifty mainland stores probably lose about $5 million [Canadian] per year between them,” Perry Caicco, an analyst for CIBC World Markets, Toronto, said in a research note. “The goal for Sobeys will be to repair those stores, establish an operating platform, and begin an aggressive growth program in B.C.”
Caicco said he expects Sobeys will re-brand the mainland stores to its Sobeys banner shortly after the deal closes and then look to acquire real estate for further growth. But this would be “a long slow road, and probably costly,” he cautioned, especially as Sobeys encounters opposition from Overwaitea and its Sav-On banner, which Caicco called “the best chain store in B.C.,” and Safeway Canada, which has begun to apply its U.S. “lifestyle” makeovers to its Western Canada stores.
Marketplace IGA is a strong independent in the region, and Wal-Mart Stores has targeted the area for supercenter expansion, sources added.
Currently, Sobeys operates only two stores in British Columbia: Invermere and Fort St. John, both close to the Alberta border but the westernmost locations of the 1,300-store chain.
The Thrifty deal also positions Sobeys to participate in further consolidation in the market, according to David Gray, a president of Sixth Line Solutions, a retail consultant in Vancouver.
“Sobeys has been trying to get into B.C. for a long time. They've tried to take out other players here already, but been rebuffed,” Gray told SN. “I think though that consolidation here is only a matter of time.”
On Vancouver Island, Sobeys will be challenged to maintain a sense of independence and community involvement that has made Thrifty a strong local franchise, sources said. The company plans to continue operating the stores there under the same banner. Milford Sorensen is expected to stay on as Thrifty Foods' chief executive officer and will report to Bill McEwan, Sobeys' CEO.
“Sobeys is saying they're going to operate Thrifty's as a separate banner with its existing management team, but you always wonder if that can last,” Gray said.
“Thrifty is a very strong grocery player in its market with a terrific following,” he added. “They are very community minded and showed great leadership in supporting local producers of food. There's concern right now from local charities and other local groups that it will be the same.”
According to Caicco, Sobeys purchased the chain for about 8.7 times EBITDA. He expects Sobeys can realize around $10 million (Canadian) in synergies through purchasing savings and cost reductions. Sobeys itself was recently taken private by its largest shareholder, Empire Cos., for around eight times its EBITDA.
Part of the rationale for the going-private deal was to provide Sobeys with the flexibility to make acquisitions, officials said at the time.
