Pattison Group open to Sobeys acquisitions

If Sobeys is selling, Jim Pattison might be buying.

Pattison, the chairman and CEO of Canadian conglomerate Jim Pattison Group, said in an interview on Canada’s Business News Network this week that he was open to the possibility of acquiring additional supermarket locations if Sobeys, which has been struggling with lagging sales and profitability, were to pursue a sale.

Stellarton, Nova Scotia-based Sobeys has had particular difficultly with its stores in Western Canada, where it took over about 210 stores from Safeway in 2013 but has stumbled in its efforts to integrate them with the rest of the company, which operates across Canada. Jim Pattison Group is the parent of Overwaitea Food Group and Buy Low Foods, which both operate multiple supermarket banners and wholesale operations in Western Canada.

“We certainly would be interested if any stores became available,” Pattison said in the BNN interview when asked if he had an interest in buying any Sobeys stores, saying the company was committed to both Western Canada and the grocery industry. “If there were any opportunities that came up that would be good for any of our competitors and ourselves, and they wanted to sell, we would certainly be interested in the opportunity.”

Asked if the company was currently considering an acquisition, a spokeswoman for Jim Pattison Group told SN it does not comment on acquisitions until they are completed.

Overwaitea Food Group previously acquired 15 stores from Safeway and Sobeys when Sobeys had to sell off some locations to complete its $5.8 billion acquisition of Safeway Canada. The stores included 10 Safeways, plus three Safeway-owned Thrifty Foods locations and two Sobeys stores, mostly in the Vancouver area.

While Sobeys has struggled to integrate the Safeway acquisition, some observers said they believe the company will continue its turnaround effort in Western Canada, especially given the fact that a new CEO just came on board.

“It is unlikely that Sobeys will divest the Safeway stores, as these have provided it with critical scale in Western Canada, enabling it to build a truly national network,” said Stewart Samuel, program director at IGD Canada. “With a new CEO in place, and a new approach to win back shoppers, the business will be given some space to see if it can turn around the performance.”

Samuel applauded Sobeys for bringing a differentiated concept to the market with the new Safeway Extra format, which includes a focus on perishables and service. 

Early this year Sobeys parent Empire Co. named Michael Medline, a veteran of retailer Canadian Tire, as the new president and CEO of Empire and Sobeys. In his first earnings call as CEO last month, Medline said tackling a turnaround in the West was a priority, and said details abut a strategy would be revealed in the coming months.

Sobeys said it has struggled with “operational issues” in the wake of the Safeway acquisition, including the conversion of private labels and the produce supply chain. In addition, the weak economy during the past two years in Alberta and Saskatchewan has negatively impacted sales.

In the most recent fiscal year, which ended last May, the Western division posted same-store sales declines, excluding fuel, of 1.5%, including a decline of 3.6% for the fiscal fourth quarter. In the recently ended third fiscal quarter, same-store sales, excluding fuel, fell 3.7% and 3.1% overall, weighed down by ongoing struggles in the Western division. Excluding the West, same-store sales fell 2.6%, the company said.

Although he doubts Sobeys would seek a sale anytime soon, Samuel of IGD noted that the Safeway stores occupy a lot of prime sites and would likely attract the attention of other Canadian retailers if they did come on the market. 

“Given the strength of the real estate, there is unlikely to be a shortage of interested parties if the business were to be divested,” he said. “Metro would be a natural fit for the business, given similarities in their store formats and propositions, and the opportunity to build a national presence. Loblaw, the market leader, would also have an interest, having brought its CityMarket supermarket format to the region over the last couple of years.”