As Sobeys appoints Michael Medline as its new President and CEO, we take a look at four key issues likely to be sitting in his in-tray.
Previously led Canadian Tire
The appointment of Michael Medline comes following an extensive international search since the departure of Marc Poulin last summer. Medline is well known within the Canadian retail sector having served for than 15 years in a variety of senior roles at Canadian Tire, a leading multi-sector non-food retailer, including most recently as the retailer’s President and CEO. He left that business last summer following the company’s decision to bring back its previous CEO, Stephen Wetmore, to the top role.
Knows the Canadian market and its shoppers
Given the number of challenging issues that Sobeys faces, it was expected that an experienced food retailer would be appointed to lead the business. However, Medline has a deep understanding of the Canadian retail market and the Canadian consumer, along with significant experience across multiple trading formats. This will be invaluable for the retailer as it pushes ahead with its recovery plan. He is expected to work closely with the team of consultants that have recently been appointed to help shape the retailer’s strategy going forward.
A stacked in-tray: four key questions to consider
1. Assess the new pricing model: can it win with an EDLP approach?
The retailer’s priority is to drive sales growth. An essential element of this is strategically improving its shelf-edge pricing competitiveness, moving closer to an EDLP approach, a process which is under-pinned by its new ‘Simplified Buy and Sell’ (SBS) program. We expect this program to continue at least in the short term, having launched in Quebec and Western Canada last year. While it is yet to gain traction with shoppers and deliver the required uplift in volumes, a stronger effort to market the new price positioning is likely, to see if it will change consumer behaviour over time. The program is unlikely to be implemented elsewhere until it sees a meaningful return in these two regions.
2. Get the West back on track: will it launch a discount format?
One of the key reasons why the program was implemented in Western Canada was due to the sales and traffic challenges it was experiencing at Safeway, the business which it acquired in 2013. While the business appeared to be a good fit for Sobeys, both strategically and geographically, sales and profitability began to slide as changes were made to its produce buying and forecasting systems and new private label ranges were introduced. At the same time, a downturn in the region's economic performance started to take hold and impact other banners, while issues were further compounded by a structural reorganisation which was being undertaken in the region.
While we have been impressed by the recent launch of the Safeway Extra format in the market, one of the key decisions for the new CEO will be to consider whether it needs to bring its FreshCo discount format into the region to compete against Walmart and Loblaw’s No Frills banner.
3. Move to a lower cost structure: can it cut the complexity and build a leaner cost structure?
With sales trends under pressure, Sobeys is also focused on optimising its cost structure. The business acknowledges that it can be complex to work with and there is a need to simplify its business model. Efforts will be focused on reducing costs in back office and support functions, operations and distribution, areas where the retailer believes there is huge opportunity. Significant work is already underway to simplify its supply chain, with its new planned automated distribution centres on-track and the consolidation of existing DCs underway.
However, the external appointment will provide objective leadership to discussions around Sobeys’ go-to market strategies, merchandising and buying and organisational structure, paving the way for more radical changes than may have initially been expected from the process.
4. Improve in-store execution: can it hold its own with a number of the best retailers in North America?
As it builds a sharper pricing position, the retailer will also need to focus on delivering an improved shopping experience. Investments are already being redirected to areas which impact the shopper, including adding more labour hours and further resources in Western Canada. While Sobeys has faced trading challenges, its major competitors, Loblaw, Overwaitea Foods and Metro, have built momentum within their businesses through a more focused and disciplined approach to in-store execution. This is a strength for Metro in particular, a business which is currently delivering some of the best results among major grocery retailers across North America.
While there may have been easier share gains for these retailers over the last 12 to 18 months as Sobeys experienced its trading challenges, they have also benefitted from the significant investments made in renewing their store portfolios. Building a differentiated in-store experience is also likely to be on Medline’s radar, an area where he was instrumental in driving change at Canadian Tire.
| Stewart Samuel, Program Director, IGD Canada|
Based in Canada, Stewart heads up all of IGD's research and coverage on Sobeys. He is also responsible for shaping IGD's research program across North America. Contact Stewart at email@example.com for further insight on the region.