WESTWARD HO! 1998

BRIAN DUNN

STELLARTON, Nova Scotia (FNS) -- Sobeys here is growing, maybe because there's little choice.

Sobeys is Atlantic Canada's largest food retailer, an operation that began as a butcher shop in 1905 but which has now grown into a chain of 110 corporate stores. Those stores account for about half the region's food sales.

It operates in the six provinces of eastern Canada, excepting Prince Edward Island, but including Quebec and Ontario, where half of Canada's population lives. That's where growth must take place.

But Sobeys, a division of Empire Co. here, is facing more challenges than seeking population: Loblaw Cos., Toronto, has been aggressively expanding and where it possesses an estimated 27% market share. Sobeys has decided to fight fire with fire.

Now, the food retailer has begun a more aggressive expansion, opened by the sale of its 25% stake in Provigo, Montreal, last year.

"We were never really encouraged to invest heavily in Quebec because we already invested in a company that had a significant market share there," Douglas Stewart, vice chairman and chief executive officer of Sobeys, told SN. "We're now seeking out good sites in both Quebec and Ontario [where 30% of its retail square footage is located] and we plan to expand at the rate of three to five stores a year."

Sobeys stores average 32,000 square feet but, Stewart said, new Sobeys stores will average between 40,000 square feet and 55,000 square feet to compete in Quebec and Ontario.

Stewart said he doesn't believe being an outsider in those areas will prove detrimental to growth.

"I find consumers don't linger too long on heritage if the value isn't there. If you want loyalty in this business, you're better off getting a dog."

Sobeys strength is its good product mix fine-tuned to regional markets and good pricing, according to Stewart. Some stores are also adding dry cleaners and Lawton pharmacies. Sobeys bought Lawton from Empire two years and brought it under its supermarket umbrella.

"Our staff is extremely friendly and we're not shy about investing," said Stewart. "About 75% of our stores have been remodeled, expanded or modernized in the last seven years."

Merchandising efforts include a home-meal replacement concept called "The Courtyard" and Sobeys' line of private-label products under the "Our Best" name. Introduced in 1995, the private-label line consists of more than 1,000 products that together registered a 17% increase in sales last year as compared with an 8% increase in overall sales. Sobeys plans to increase the line by 25% this year. The company also offers a line of budget products under the Signal label.

In terms of regional marketing, Sobeys discovered that shrimp is a big seller in Ontario and Quebec, while Maritimers prefer lobster. Similarly, shish kabobs are big business in Quebec but flopped when Sobeys introduced them in Atlantic Canada. And molasses sells better in the Maritimes where people do more cooking than in Quebec.

The same applies to national brands, where Aylmer soup is not as popular in Ontario as in Quebec, where it outsells Campbell's.

Empire, Sobeys parent, is also active in the United States through its 25% interest in Hannaford Bros., Scarborough, Maine, one of New England's largest food retailers with sales of about $3 billion (U.S.) last year.

Apart from its investment value, Empire's involvement with Hannaford provides Sobeys with valuable expertise in emerging retailing trends in the United States.

Sobeys has been involved with Hannaford for more than 20 years, but doesn't plan to increase its involvement.

"We have a stand-still agreement with them to prevent a creeping takeover," Stewart explained. "But we have an excellent relationship with them and we sit on each other's boards."

Stewart hasn't ruled out other U.S. acquisitions if the right opportunity came along. "However, it's hard for us to get operating synergies in the U.S. Our investment in Hannaford seems to be the best way to go."

In addition , Empire is active in the food-service sector, where its Clover Group and Burgess Wholesale are the largest suppliers to the institutional and restaurant markets in Atlantic Canada, and is growing in Ontario.

About 95% of Empire's sales of $3.1 billion ($2.1 billion U.S.) for the year ended April 30, 1998 came from its Food Distribution division. The food operations consist of Sobeys retail stores; Sobeys wholesale group, which supplies groceries to 127 Foodland stores; 75 Lawton's drug stores; and more than 100 convenience stores under the Needs and Green Gables banners.