STELLARTON, Nova Scotia — Saying it was “very encouraged” with its first eight conversions, Sobeys is planning to flip “dozens” more of its Price Chopper discount stores to the new Frescho format over the next 18 months.
Freshco debuted last month at eight former Price Chopper sites, which were closed briefly to facilitate conversion to the new brand. The stores maintain sharp pricing but emphasize fresh produce, local and international offerings in a “controlled flow” format that leads shoppers though the entire store department by department.
“We stepped back and said, ‘Why does discount need to be such a compromise?’” Bill McEwan, chief executive officer of Sobeys, said during a conference call discussing the fourth-quarter and fiscal-year results of Empire Cos., Sobeys' corporate parent. “It's a fresher, better, cleaner store that tailors to local markets.”
McEwan said shoppers had reacted positively to the serpentine layout, both in test runs and in practice. Further Price Chopper conversions will continue with the same layout, he said.
“It's been some time since we've heard such an overwhelming consumer response to a new concept,” McEwan said. “Although there's been some concern with the flow, it's been really too insignificant to mention. We researched it ahead of time, and we've been back in the market ourselves after a few weeks to see what consumers think of the concept. They validated it. They love it.”
Freshco is helping to bring new life to Sobeys' discount operations in Ontario, which are generally considered weaker than Loblaw Cos.' No Frills and Metro Inc.'s Food Basics discount banners, Sobeys' largest competitors. McEwan said the conversion from Price Chopper to Freshco can be completed in seven or eight weeks, with locations closed for less than a week to complete the process.
The stores eschew service meat and deli departments, which were an option at some Price Chopper locations, he explained.
In financial results for the quarter that ended May 1, Sobeys said sales improved 2.8% to $3.6 billion (U.S.) while same-store sales improved 0.5%. Sobeys said deflation ran about 2% during the quarter — a little more than officials had anticipated. Gross margin as a percentage of sales was down slightly as Sobeys responded to competitive price pressure in a few markets.
“We're just not going to give an inch when it comes to our competitive position, and sometimes that takes 10 or 20 basis points of margin,” McEwan said.
Quarterly net earnings of $58.8 million increased 2.3%. For the fiscal year, Sobeys said net earnings improved 15.2% to $248.8 million on a 3.2% sales gain to $14.6 billion.