Charlebois: Grocers seek to restock the industry with innovation

Downsizing is never easy. And just weeks before the festive season, reducing staff is bad for morale. But industry changes are forcing Canada’s grocers to rethink store structures, including staffing.

Metro let 250 people go recently. Loblaws announced 500 layoffs. Then Sobeys said it was cutting 800 employees – about two per cent of parent company Empire’s total workforce.

Some analysts think Sobeys layoffs are about the company’s purchase of Safeway stores in Canada but there’s more to the story.

Empire acquired Safeway in 2013 for almost $6 billion after an apparent bidding war with Metro. Both companies wanted a better handle on the lucrative Western Canadian market.

But as the oil price slump shifted the economy, the merging of Sobeys and Safeway assets and the restructuring seemed poorly executed.

So Sobeys launched Project Sunrise earlier this year to help simplify its organization and reduce costs. Recent financial results suggest it’s working. Operating costs are lower, the Safeway problems seem more contained and financial results are getting better.

However, some stores continue to struggle.

Sobeys has a complicated and highly decentralized structure. Recent layoffs are being felt throughout the company, not just at Empire’s head office.

A decentralized structure helps when it comes to adapting to local-market conditions. But when food prices are under extreme market pressures, broad structural efficiencies are key.

So Sobeys still has a long way to go. Empire shares are up 34 per cent over the last 12 months, but its value is still about 10 per cent off three years ago. And Sobeys doesn’t have the luxury of time to improve results.

The industry-wide layoffs (more than 1,500 jobs) aren’t about minor strategic readjustments.

A fundamental shift is taking place and no grocery company is immune to the fluctuating market forces. And it’s not about the minor problem of higher minimum wages in some provinces. It’s about the increase in food space at Walmart and Costco stores, and Amazon’s entry into the food marketplace. Amazon isn’t just forcing grocers to raise their competitive game, it’s compelling them to think differently about the consumer.

Many consumers still want to see and touch products before buying them. But a growing number wonder if visiting a grocery store is the best use of their time. Young consumers who’ve grown up with the Internet would embrace buying groceries regularly online. Walking around a store and waiting in line to give their money to a clerk isn’t appealing.

Sylvain Charlebois is a Troy media columnist

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