SOBEYS TO CUT BACK ON PRIVATE LABEL

BRIAN DUNN

STELLARTON, Nova Scotia -- Sobeys here has decided to cut its private-label program by 5% this year in an effort to distinguish itself from competitor Loblaw Cos., according to industry analysts.

While Canada's second-largest grocer declined to offer specific reasons for the move before its Sept. 10 annual meeting, industry watchers believe the company may be able to get better discounts from national suppliers by positioning itself as a major promoter of them.

"The issue as a whole is that Sobeys is trying to co-exist with Loblaw by being different and stronger in national brands, which is more important for suppliers than for consumers," said Perry Caicco, merchandising analyst at CIBC World Markets, Toronto.

With private label representing only 14% of the retailer's sales this year vs. about 30% at Loblaw and 25% nationally, Sobeys is well-positioned to go after some of the supplier money, said Caicco.

"There's tons of supplier money out there and it's in their best interest to go after it vs. concentrating on other programs. It's a good strategy."

Another analyst who requested anonymity agreed, saying suppliers are more likely to give retailers better deals if they think they are committed to their brands. The analyst also suggested the strategy could save Sobeys the trouble and expense of creating and promoting new private-label products that may have only marginal success.

In a report following the release of Sobeys' fiscal year-end results in June, analyst Patricia Baker of Merrill Lynch Canada in Montreal said she was not convinced that private label is "an integral part of the Sobeys offering" and that a further scaling back is likely.

During the same time, Sobeys Chief Executive Officer Bill McEwan said the company was abandoning a "macro-penetration" approach to private labels in favor of a more focused strategy, cutting weaker products and promoting stronger ones.

In addition to cutting back its private labels, Sobeys is also consolidating its banners in Ontario where it inherited a mix of operations when it purchased the Oshawa Group three years ago. The operations include 155 small stores under various banners such as Knechtel and Foodland, 57 Price Chopper discount stores, 110 small IGAs, 29 large IGA Garden Markets and 36 corporate large-surface Sobeys.

The grocer plans to drop the IGA Garden Market banner and convert a number of them to Sobeys, which will grow to 60 stores.

The remaining IGA division, of about 118 stores after the restructuring, will be small-surface and service-focused outlets.

"Their Ontario business has basically been a mess of different tactics, all of which have conspired to cause a significant loss of market share over the past two years," said Caicco.