Sobeys announces ‘manifest’ restructuring

Empire Cos. on Thursday announced a major restructuring initiative at its Sobeys retail chain aimed at reducing annual expenses by $500 million a year by fiscal 2020.

Dubbed “Project Sunrise,” and set to begin immediately the transformation will allow Empire to reinvest in its business and grow its sales and bottom line, CEO Michael Medline said in a statement.

“We have an aggressive goal to transform our organization, better serve our customers, empower our employees and assuredly move from defense to offense in the market. To do this we need to unleash the talents and scale we already have at our disposal,” Medline. “The future Sobeys will operate with a simpler, leaner structure, more efficient core processes and tools and will better leverage its $24 billion national scale. This will free us up to be extremely nimble, thrill our customers and grow market share. Results of this transformation will take time, but we are committed to seeing them through given the compelling prize.”

Areas of cost savings include a plan to collapse multiple regional divisions in favor of a single national, functionally led structure; simplify how the company collaborates with vendors while leveraging its purchasing scale; and driving enterprise-wide efficiencies and productivity initiatives.

The restructuring is expected to result in job losses at the corporate level, although the company did not specify the number of jobs that would be affected.

Medline, who took office at Sobeys earlier this year, has made no secret of his intention to simplify Sobeys, which has struggled behind a botched integration of Safeway Canada and a rocky transformation to an EDLP market strategy. Speaking at a conference call earlier this year he described the structure as “Byzantine.”

Empire has laid out a comprehensive three-year plan for the transformation, which it described as “a clear response to Empire’s business performance over the past 18 months as well as Mr. Medline’s observations since joining Empire that the company needed to change its trajectory, including re-engaging with customers and making difficult decisions that had not been made in the past.”

Sobeys said the restructuring would begin by clarifying role accountabilities while eliminating cumbersome regional duplication and complexity in decision making and operations.

Initial results from this initiative are not expected to be reflected until the end of calendar 2017.

“We understand and appreciate the impact that change of this magnitude will have on our employees, but are committed to moving with unprecedented velocity to make tough decisions and execute changes while not putting service to our customers at risk,” Medline said. “We have been very careful to balance significant change to our organization with awareness of the risks associated with a major transformation. We will focus on making these bold changes while at the same time ensuring we stabilize performance, particularly in Western Canada.”

To support the transformation Sobeys plans to record “significant” one-time costs in adjusted earnings for severance, relocation, retraining, minor systems development and third-party support.

These costs will begin to be expensed in the fourth quarter of fiscal 2017 with the majority of the costs expensed in the first half of fiscal 2018. Sobeys said it would provide additional detail when it reports fourth-quarter financials in June.

In conjunction with the announcement, Medline named several leaders of its national organization, a mix of internal candidates and new additions to the team.

The following appointees will report to Medline effective immediately:

In addition to the leadership roles noted above, the following functions will also report to Medline and provide national, business-wide support.

“Our new structure reflects a manifest change for the business,” said Medline. “We have made deliberate choices throughout. For example, we are elevating key functions, such as marketing, in order to more effectively communicate with our customers. We are balancing potential risk to our unique Quebec and Discount businesses by keeping them distinct, while harmonizing the way they operate nationally. We are ensuring focus on the core grocery business by separating out related businesses, like pharmacy and fuel, into a distinct functional structure.”

The appointment of these leaders represents the beginning of a broader organizational design process. Company leaders will be responsible for designing and staffing their teams in cascades through the balance of the year.

Decisions regarding where functional teams will be located will be determined through the organizational design process; however, the company expects to maintain its major offices across the country, including a significant and ongoing presence in Stellarton, Nova Scotia, where the company remains headquartered.

With approximately $24 billion (Canadian) in annualized sales and $8.7 billion in assets, Empire and its subsidiaries, franchisees and affiliates employ approximately 125,000 people. It operates 1,500 stores in all 10 Canadian provinces under retail banners that include Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods and Lawton’s Drug Stores as well as more than 350 retail fuel locations.