Sobeys Q3: profitability improves as it plans for next growth phase

Stewart Samuel
Program Director - Canada
@RetailAnalysis

Date : 14 March 2020

We review Sobeys’ third quarter performance as it looks to complete its three-year turnaround plan, Project Sunrise.

Key numbers

  • Total sales up 2.4% to $6.4bn
  • Same-store sales (ex-fuel) up 0.8%
  • Operating income up $125m to $235.0m
  • Adjusted net earnings up 69.7% to $123.7m

Intensifying price competition

Sobeys delivered another solid performance this quarter as it approaches the end of its three-year turnaround plan, Project Sunrise. Although, same-store sales growth slowed from the 2.0% growth achieved in Q2, the retailer was facing tough comparables from last year. Its two-year stacked comp sales came in at 4.1%. Sobeys has also seen competition intensify, especially in western Canada, in response to the launch of its discount format in the region.

Three growth platforms

The business continues to focus its efforts on its three growth platforms; Farm Boy, FreshCo and Voilà. The retailer has outlined plans to open 10 additional Farm Boy stores in Ontario over the next two years, targeting urban locations. Recently, it converted the first Sobeys Urban Fresh store to the Farm Boy format.

Source: IGD Research

Driving disruption in the west

The FreshCo discount format continues to expand in western Canada, with 13 stores currently trading in the region. A further four are planned for fiscal 2020 and five in fiscal 2021. As the retailer builds out the brand, it is investing in margin and marketing to attract customers. The benefits of this can be seen with more recent openings, which are performing better and are ramping-up faster, compared to the earlier stores.

New strategic plan to be unveiled in May

With a solid foundation in place, all eyes will be on the retailer’s next announcement in May when it will share its strategic plan for the next two to three years. Sobeys will be looking to close the margin gap with its competitors, while also driving sales and gaining market share. As part of this, one of the most significant developments will be the launch its ecommerce service, Voilà, in the Greater Toronto Area in the next few months. Developed in partnership with Ocado, the retailer will initially soft-launch before ramping up to a full roll-out supported by a dedicated marketing plan. The retailer believes that its compelling proposition will enable it to gain share in the channel, despite the established presence of competitors including Loblaw, Walmart and Longo's. 

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