SOBEYS LAUNCHES NEW PRIVATE LABEL

ELLIOT ZWIEBACH

STELLARTON, Nova Scotia -- Sobeys here unveiled Compliments, its new private-label brand, at its annual general meeting earlier this month as part of an effort "to merchandise our way to success," according to Bill McEwan, president and chief executive officer.

The new line will replace the chain's Our Compliments and Smart Choice private-label brands, he said.

The introduction of a re-engineered line "does not mean we were dissatisfied with our private-label program," McEwan said. "But being satisfied is not good enough.

"This is not a relaunch of our private-label program, nor is it simply refurbished packaging," McEwan told shareholders. "It's a new brand and a new program across our organization, and our goal is to surprise and delight -- not just satisfy -- customers with a single brand."

The first Compliments products began appearing in a handful of stores earlier this month. McEwan said Sobeys anticipates a rapid rollout at all store banners across Canada over the next 18 to 24 months. He said he anticipates the Compliments line will encompass 3,000 items -- in a three-tier program -- by the end of 2005.

In a conference call with financial analysts a few hours after the annual meeting, McEwan said Sobeys will retain Smart Choice, its value line, for wholesale customers "separate from controlled-banner stores."

During the meeting, Sir Graham Day, Sobeys' chairman since 2001, said he was stepping down, having reached mandatory retirement age of 70 a year ago, though he was asked to serve for one additional year. He said he will remain a board member for one more year. Succeeding him as chairman will be Peter Godsoe, who joined the board in March, a few months after retiring as chairman and CEO of The Bank of Nova Scotia.

In McEwan's remarks to shareholders, he said Sobeys is on track to fulfill the corporate strategy it outlined a year ago: to maintain a focus on food; provide fresh expertise; offer superior customer service; and operate right-sized stores. "That strategy has delivered tangible, positive results in a very challenging marketplace," McEwan said.

For the first quarter ended July 31, Sobeys said sales rose 9.1% to $2.3 billion (U.S.), same-store sales climbed 2.9% (excluding the 15 Commisso stores the company acquired earlier this year), and net income increased 11.5% to $36.2 million.

Speaking with analysts in the conference call, McEwan said the increases in financial results were in line with corporate expectations, and reflected improved in-store execution and operational performance resulting from key merchandising and productivity initiatives.

He said Sobeys is seeking productivity gains in logistics.

The company is also in the early stages of installing a new program designed to eliminate waste, boost productivity without compromising store service, and share best practices chainwide, McEwan said.

Sobeys expects the initiative to result in a 25% increase in productivity, including a better workflow, a 20% reduction in back-room inventory, and up to a 3% reduction in perishables shrink, McEwan said.

1ST-QUARTER RESULTS

Qtr Ended:7/31/04; 8/2/03

Sales: $2.3 billion; (U.S.)$2.1 billion

Change: 9.1%

Comp-store: 2.9%

Net Income: $36.2 million; $32.5 million

Change: 11.5%

Inc/Share: 55 cents; 50 cents