ETOBICOKE, Ontario -- Oshawa Group here said last week it will sell 25 retail properties by Nov. 7 and use the proceeds -- about $72 million ($100 million Canadian) -- to upgrade its store network and install new technology.
The company said the capital will fund new stores and remodels that will offer more fresh foods, including prepared meals.
Oshawa said the divestiture is part of a continuing strategy to shed nonstrategic assets. That strategy included the sale of its Pharma Plus Drugmarts subsidiary to Edmonton-based drug store operator, Katz Enterprises, which concluded this month.
Oshawa said it will continue to operate the supermarkets located on the divested properties by signing long-term leases with the buyer, Summit Real Estate Trust. The properties being divested are located in Nova Scotia, Quebec, Ontario, Manitoba, Saskatchewan and Alberta.
"We are going to be investing heavily in renovating and upgrading stores, and also opening new stores," said Bob Boyd, Oshawa's executive vice president and chief financial officer.
"We decided that as long as we could have a lease in place that was advantageous to us to operate the food stores for many years in the future, we'd be better off disposing of those facilities and redeploying the funds and renovating stores and building new stores."
Boyd told SN the leases are long-term, with a prime term of 10 years and options to renew for another 20 years.
"The key item is that you have a rental situation that it good. We are ensuring that as part of our negotiations."
Under the arrangement with Roycom Acquisition Corp., the buyer acting on behalf of Summit Real Estate Trust, Oshawa will assist with the financing, providing the buyer with a three-year, $37 million mortgage.
Boyd said the company is still deciding which stores will be remodeled and where to build new units. He said the company will deploy the proceeds in retail and wholesale operations throughout the country, with some added emphasis on the Central region.
Financial analysts applauded the announcement, but said Oshawa's plans to invest in the retail side are long overdue.
"This is a good move," said Patricia Baker, an analyst with Midland Walwyn Capital, Montreal. "It gives the company capital, and I take it as a positive sign that Oshawa is going to put the cash back into the stores.
"In the past, Oshawa has been reluctant to spend money on retail operations. In the supermarket business you have to spend money to make money."
Baker said Oshawa should focus the capital on its worst-performing region, the Central region, which includes the fiercely competitive Toronto market.
"I would hope they focus on Ontario," she said. "That's where they need [the capital] most."
Boyd said concerns about Toronto are valid.
"Ontario is very competitive marketplace," he said. "Everybody knows that. People talk about it being overstored and so forth, but that's the market that you have to operate in. We really have to upgrade our stores in that market to make sure not only that they remain competitive, but also to improve their competitiveness."
The remodels and new units will follow Oshawa's new fresh format, which emphasizes perishables departments -- meat, bakery, produce and deli.
The new and remodeled stores will be patterned after a new prototype store set to open in Mississauga, a Toronto suburb, within four to eight weeks. That store will carry about 50% perishables, up from about 30% at existing Oshawa stores. The prototype will also emphasize prepared meals.
"That's a trend in the United States, and it's just coming to Canada now," Boyd said. "That will be a part of our new store concept."
Boyd said the company will also invest heavily in the information technology area. After several years of rapid growth through acquisition, Oshawa is in need of a standardized information system. IT investments alone will total $50 million in 1998, plus an unspecified amount in the two years after that. "We are in the process of bringing all our systems together," he said.
"We have embarked on a strategy to do more things on a national, more standardized basis. What that requires is that we have national and standardized systems, which we haven't had in the past."