Sobeys seeks ‘transparency,’ better deals in supplier
pricing overhaul
The Globe and Mail
Published Sunday, Dec. 06, 2015
5:12PM EST
Last updated Sunday, Dec. 06, 2015 6:40PM EST
Sobeys Inc. is moving to drop some controversial supplier pricing
practices as the grocer works to streamline its operations and provide better
deals for shoppers.
Marc Poulin, chief executive officer of Sobeys, said in an
interview that the steps the retailer is taking with its suppliers are aimed at
removing the “complexity” and administrative cost of deducting multiple
payments from vendors for such things as bulk buying and flyer promotions.
The country’s second-largest supermarket retailer wants to become
more “transparent” and improve pricing and other aspects of the shopping
“experience,” such as promotions, product offerings and service, he said.
He did not elaborate on the extent of Sobeys’s potential cost cuts
as a result of the changes. Suppliers – uncertain about the ultimate effects of
the overhaul – wouldn’t comment, saying negotiations with Sobeys are ongoing.
But the moves come as the grocer struggles to integrate its newly
acquired Safeway Canada chain amid challenged financial results. As well,
Sobeys is grappling with an uncertain economy, especially in Western Canada,
where the retailer lacks discount formats to serve a more fragile consumer.
“As a retailer it’s obviously our task to try to get the best deal
possible from the vendor [supplier] because, obviously, we want to reflect that
to our customers,” Mr. Poulin said.
Sobeys’s vendor pricing changes, which its executives presented at
a private meeting with suppliers on Nov. 24, come as the grocer faces off with
low-cost rivals that threaten to steal away business. Discounter Wal-Mart
Canada Corp. has been bulking up on food, while Costco Wholesale Canada and
Loblaw Cos. Ltd., which runs No Frills and Real Canadian Superstore, also cater
to bargain hunters.
Sobeys, without a dominant discount format outside of Ontario
where it operates FreshCo stores, feels the heat to raise its game.
At the same time, supplier pricing policies have come under a
microscope as a result of a Competition Bureau investigation into Loblaw’s
rules with its vendors. Last month, Loblaw said it was revamping some of its
vendor practices to achieve more transparency and less complexity.
Mr. Poulin emphasized Sobeys’s latest moves aren’t tied to the
bureau’s inquiry.
Peter Chapman, president of grocery consultancy GPS Business
Solutions, said Sobeys needs to become more competitive and lower some prices
as it takes on aggressive players.
Sobeys’s prices often are higher than many of those at key
competitors, he said. Loblaw executive chairman Galen G. Weston predicted last
month that its discount formats in Alberta could benefit from the weaker
economy caused by the oil slump.
Mr. Poulin said Sobeys wants “to achieve the best offer possible
for customers and the best customer experience. … Our current practices are not
100-per-cent focused on that. We are doing a lot of things that are not of
direct benefit to the customer because they are administratively burdening. We
want to refocus our efforts and the efforts of our suppliers.”
The initiatives will be “cost neutral” for suppliers, he said. “In
lots of cases, creating simplicity is a complex task.”
Amid the changes, the Competition Bureau is looking into whether
Loblaw’s vendor terms may raise costs for rivals and increase grocery prices
for consumers. The bureau launched its investigation after Loblaw’s $12.4-billion
takeover of Shoppers Drug Mart Corp. last year. About a year earlier, Sobeys
acquired Safeway Canada for $5.8-billion.
In October, Loblaw told its suppliers it would scrap pricing
rules, such as retroactive rollbacks and pressing suppliers to match lower
advertised prices of rivals, starting Jan. 3, as part of an effort to
streamline its operations and smooth relations with its vendors.
On Nov. 24, Mr. Poulin and Dale MacDonald, Sobeys’s senior
vice-president of national procurement, met with members of the Food and
Consumer Products of Canada, which represents suppliers, to discuss the
company’s news policies. FCPC executives declined to comment.
Wendy Evans of retail specialist Evans and Co. Consultants said
the latest actions of Loblaw, and now Sobeys, could help discourage the bureau
from recommending harsh federal measures, such as introducing a code of conduct
to regulate the grocers’ practices. Suppliers and small grocers have been
pushing for a code that is similar to the one in Britain.
The bureau’s investigation has been a wake-up call for big grocers
to ensure they don’t abuse their positions of power, she said. The bureau has
singled out Loblaw in its inquiry “but almost all of the major players had been
using some of those same tactics,” said Ms. Evans, who has done work for small
and large grocers. (Mr. Poulin stressed that Sobeys never engaged in some key
practices that have come under question at Loblaw by the bureau, such as
forcing suppliers to cover ad-matching costs.)
“You can only push your suppliers so far,” Ms. Evans said. “They
have been on the losing end for a long time … Hopefully, this will make it a
more level playing field for all of the players involved.”
Sobeys touched off a storm in late 2013 when it told its suppliers
to retroactively shave their prices by 1 per cent after its Safeway takeover.
As well, it said it was freezing almost all wholesale pricing for 2014.
Sobeys’s parent Empire Co. Ltd. is to report its quarterly results
on Tuesday.
Loblaw’s Mr. Weston told analysts last month it is seeking “a more
collaborative business” approach with its suppliers to “reduce volatility” and
“improve visibility” and “reduce the amount of complexity that we engage in
when we’re negotiating with vendors, both on annual contract and then on
short-term sort of promotional support.”
He said he thought suppliers “feel supportive of the approach and
it’s going to be hard work to get through some of this stuff, as you change the
nature of contracts, the type of conversation that you have with the vendor
community. But at this point, we don’t see any – in fact, we see upside just
from a process efficiency point of view – and we don’t see any risk to margin
as a result of this at all.”
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