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Sobeys takes on Loblaws/Weston to court discount and ethnic shoppers

A new player touting itself as “fresher, cheaper” joined the field of discount grocers in Canada as Sobeys Inc. has transformed eight locations into FreshCo stores. Sobeys Inc., Canada’s second-biggest supermarket chain, is opening a new chain of stores aimed at capturing a bigger chunk of Ontario’s discount market and tempting multi-ethnic shoppers: The company opened eight stores, in Brampton and Mississauga, ON, under the FreshCo. banner recently.

by Anne Garber

Toronto, ON (Friday, May 14, 2010) — Sobeys, a division of Empire Co., is aiming to broaden the appeal of the discount store by offering a wider range of fresh fruit and vegetables using a bright modern design. It’s also planning to tailor products closely to the local community to attract more ethnic shoppers. The former Price Chopper stores are in the vanguard of “dozens” that will be switched over in the next year and a half.

“The Ontario market is the most competitive in Canada, with the highest concentration of discount,” president and chief executive Bill McEwan said, adding that over the past 25 years, “there has not been a retooling of what discount should mean in this diverse and rapidly changing environment.”

 

Photo: Grocer Sobeys rebranded a number of Ontario Price Chopper stores under its new FreshCo line.

Sobeys plans to rapidly expand the brand in the province, replacing most of its 87 existing Price Chopper stores. It also plans to look at new locations. There’s also a recognition that each store has a different clientele. The new stores offer multicultural and ethnic foods tailored to the needs and choices of people in the neighbouring communities.

“In Brampton, the South Asian population has grown 250 per cent in about 12 or 13 years, and there are varieties of produce that are important and relevant and required to satisfy that marketplace,” McEwan noted.

Sobeys Inc. has more than 1,300 stores from coast to coast that include Sobeys, IGA, Foodland, Thrifty Foods and Lawtons Drug Stores. In Ontario, there are 79 Price Choppers and now eight FreshCo stores.

About 60 per cent of the stores nationwide are run by franchisees, McEwan said.

But — for the time being — McEwan said the company has no current plans to take the FreshCo. brand to the rest of Canada.

CIBC World Markets senior analyst Perry Caicco welcomed the move for addressing a weak link in the Sobeys chain in Ontario.

“This is a remarkable new effort that seems to combine the pricing of a discount store with a strong ‘fresh’ presence designed to appeal both to a broader demographic and a localized ethnic shopper,” he said in a research note.

The new-look stores are also coming amid signs the recession may have led to a more permanent change in spending habits in Canada, with consumers becoming more cost conscious and willing to shop around for bargains.

Customers entering a FreshCo store will first encounter fruit and vegetables in a great hall immediately inside that flows into a deli area, a bakery market, and a local cheese and meat market.

 

Photo: The discount supermarket segment isn’t just about rock-bottom prices any more. Sobeys is targeting the growing ranks of ethnic shoppers who demand both high quality and good value.

“From there you transition into an area that’s filled with pallets of high-value merchandise, which is a hallmark feature of any discount outlet, but we’ve merchandised it in a way that it’s very, very abundant,” McEwan said.

There won’t be a full-scale change from Price Chopper to FreshCo, he said, but he met with franchisees Tuesday and they were enthusiastic about the concept.

“Market by market, if we determine through our market research … that a FreshCo is a requirement, I can’t imagine a single franchisee not wanting to proceed with it,” McEwan said.

“We’re not prepared to say where’s next for competitive reasons, but in some cases it won’t make sense to convert from a Price Chopper because … [it] actually provides a better option in that marketplace. It’s not a franchisee’s decision or our decision — we do it together.”

The discount segment of the marketplace is more developed in Ontario than almost anyplace else in North America.

“A full 35 to 40 per cent of the food shopping is done in the discount market, so to compete and participate in the retail grocery industry in Ontario, you have to have a strong discount format,” McEwan said.

The FreshCo stores aren’t fancy or expensive because the effort is being put into low prices and high-quality products, he said.

“It’s not about the decor — but it’s attractive, it’s clean, it’s contemporary, it’s functional — and the flow is such that you can get through there with less inconvenience the way it’s laid out.”

If successful, FreshCo will give Sobeys an important weapon in the increasingly crowded battle for the culturally diverse grocery shopper. That segment is being hotly contested as retailers attempt to take advantage of a massive change in Canadian demographics. By 2031, one in three Canadians will belong to a visible minority — and one in four will be foreign-born, according to Statistics Canada.

Already, a growing number of bargain-hunting customers are new Canadians who look for dried shrimp or kecap manis along with their paper towels. In the fight for those customers, Sobeys is taking on Loblaws, the market leader, which last year acquired T&T Supermarket Inc., a specialist in Asian foods, and continues to beef up its No Frills chain.

Metro Inc.’s Food Basics discount chain is also broadening its low-frills offerings, while discount giant Wal-Mart Canada Corp. is adding new “super centres” with full grocery sections that attempt to lure local ethnic shoppers.

Loblaw Companies, which last week reported a 26 per cent jump in first-quarter profit, said it had noted the trend.

“People are a lot more promiscuous,” president and deputy chairman Allan Leighton said. “There’s twice the level of promiscuity than a year ago and that’s still growing a bit.”

Loblaws owns the No Frills discount brand and also ethnic food chain, T&T, which was one of the strongest performing sectors of its business in the first quarter.

McEwan said FreshCo. would aim to cater to the local community, providing specialized products to mark religious and other cultural celebrations.

 

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