Sobeys is optimistic it can reverse the sales momentum it lost in the acquired Safeway stores in western Canada when it converted their software systems, Marc Poulin, president and CEO, told investors Thursday.
He said same-store sales have not yet returned to where they were before the disruption. “We haven’t fully recovered the momentum we had in the Safeway business prior to turning on the switch, so there’s still work [to do], but we’re optimistic about the future,” Poulin said.
The company experienced some “hiccups” during the fourth quarter when it introduced its SAP software system to the 233 Safeway stores it acquired two years ago, he pointed out.
“Service levels to the stores were not what we typically experience, so there were things we needed to adjust. We also changed the way we procure produce [moving from a service agreement with the U.S. to doing it all in Canada], and we basically switched out of the Safeway private-label, and that impacted service levels as we made those transitions.
“So there were some adjustments, and clearly, we lost some sales momentum. But I think we’re on the right track.”
The focus going forward, Poulin said, is to “build a platform for growth for the company as a whole — with common systems, common processes, a distribution system that’s efficient, and customers that start to feel a more common thread between the two offerings, which will lead to a better store experience for our customers.
“As to how fast [what we’re doing] will translate into customer acceptance, there’s always a lag and you need to do the plumbing before you can enjoy the house.”
Poulin made his remarks during a conference call to discuss financial results for the fourth quarter and fiscal year ended May 2.
He said Sobeys was able to realize cost synergies close to $120 million (U.S.) during the past year, “and with the technical integration of Canada Safeway completed in the fourth quarter, we are now focused on capturing synergies associated with distribution and logistics, plus modernization of the offering at store level and SG&A savings.
“That’s the work that’s coming in the next phase of the integration, where we’re going to create one business and integrate the people [and stores] to align and harmonize our customer offerings between Safeway and Sobeys — to come to customers with a program that’s the best of both worlds.
“We continue to identify incremental opportunities for improvement, and we remain committed to reducing cost wherever possible across the organization,” he said.
Sobeys expects to realize synergies from the second phase of the integration in late fiscal 2016 or fiscal 2017, Poulin added.

Net income from continuing operations for the 13-week fourth quarter rose 5% to $44.9 million (U.S.), while sales fell 2.9% to $4.7 billion and same-store sales, excluding fuel, increased 2.1%. The company said the decline in fourth-quarter sales was primarily the result of retail store divestitures, 50 store closures last summer associated with a rationalization program and the decline in oil prices, which impacted fuel sales.
For the year net income from continuing operations rose 32.6% to $421 million (U.S.), while sales increased 14.2% to $19.4 billion and comps, excluding fuel, rose 1.9%. The increase in sales was the result of revenues from the acquired Safeway stores, the company said.
In other remarks during the conference call:
• Poulin said Sobeys hopes to offset volume from the loss of some wholesale customers during the second half of fiscal 2015 through the agreement it signed in May to purchase five grocery stores and five fuel stations, plus other real-estate assets, from Co-op Atlantic.
• He said Sobeys has acquired a 1.3-million-square-foot former Target Canada distribution facility in Rocky View, just north of Calgary, and is in the process of converting it to a fully automated facility that will have the capacity to serve the dry grocery needs of Sobeys’ stores in Alberta, Saskatchewan and parts of Manitoba.
The opening of the facility late in the fiscal year, combined with the realignment of other back-office support functions initiated at the end of the fourth quarter, will ultimately reduce head count by approximately 1,300 jobs, he said.
• The rate of inflation is slowing, Poulin said, “though we’ve experienced a little bit more difficulty passing through inflation. On the meat side, in particular, we’re seeing customers downgrading to different cuts and adjusting to the new reality of prices, especially in beef. That’s making it difficult for us, and we need to adjust merchandising plans to take that customer reaction into account.”