A Sobeys truck sits outside a Sobeys grocery store in Toronto, Ont.Brent Lewin/Bloomberg
Grocery chain Sobeys Inc. is laying off more than 800 of its employees – almost 20 per cent of its office staff across the country – in its efforts to cut costs and turn around its struggling operations while preparing for a more digital future.
The staff layoffs, to be announced internally on Friday, are part of Sobeys's major revamping, which it has dubbed Project Sunrise, and is aimed at slashing $500-million annually in two years. Some of the employee reductions have already occurred and others will take place over the coming months until July. The country's second largest grocer, which also owns Safeway, is expected to disclose a charge it will take to cover severances in its next quarterly results on Dec. 13.
But the retailer will keep investing in its operations and prepare for a broader e-commerce launch – with home deliveries – in a bid to take on a fast-changing retail market and emerge a winner, said Michael Medline, chief executive of Sobeys and its parent, Empire Co. Ltd.
"We have a lot on our plates – we had to reorganize, we're taking costs out so we can be efficient and compete," Mr. Medline said in an interview Thursday in the Sobeys ultramodern test kitchen at its Ontario offices over a lunch of its own-brand appetizers, including pan-seared Sensations chicken and pork pot stickers. "But at the same time, we are hard at work in terms of developing an e-commerce solution that will permit us to be the pre-eminent e-commerce grocer in the country – that's got to be the goal."
Mr. Medline, who took the top job in January, is working to revive the ailing Sobeys after its $5.8-billion takeover of Safeway Canada in 2013, which gave it a prominent position in Western Canada but left it with heavy losses amid a marred merger.
Now, Sobeys has to race to catch up in almost every aspect of its business, including product offerings, pricing and marketing, even while the grocery sector feels the pressure of e-commerce powerhouse Amazon.com Inc. and its recent $13.7-billion (U.S.) acquisition of Whole Foods Market Inc.
Already, grocery leader Loblaw Cos. Ltd. announced the launch of online grocery deliveries beginning in Toronto on Dec. 6 as it teams up with U.S. delivery tech startup Instacart. At the same time, Loblaw is expanding its Click & Collect program, which means customers order online and pick up their purchases at a store.
Loblaw has focused in the past on Click & Collect, which is a more cost-efficient business model because the company doesn't bear the expense of shipping orders to each customer's home or office. Despite the extra cost, Metro Inc., the country's third largest grocer, will expand its e-commerce delivery service beyond Quebec to Ontario.
"Clearly our customer preference is for home delivery," Eric La Flèche, chief executive officer of Metro, told a quarterly analyst conference call on Wednesday.
Mr. La Flèche acknowledged that the economics of e-commerce deliveries are "challenging, but we're making progress."
Mr. Medline agreed that customers prefer e-commerce deliveries over click-and-collect. Sobeys is in the position to know: for years it has offered e-commerce in Quebec and through its Thrifty Foods stores in British Columbia.
"When we give people the choice in Quebec, almost 90 per cent of them choose home delivery over click-and-collect," Mr. Medline said. In densely populated urban markets, e-commerce "means delivery to home," he said. "It's a must-win battleground for Sobeys."
And while e-commerce makes up just 0.8 per cent of Canada's estimated $100-billion of grocery industry sales, it is expected to increase to 2.5 per cent of the market in five years, according to Sobeys's research.
E-commerce is the fastest-growing segment of the business and will continue to pick up at a quick pace, Mr. Medline said. "As a retailer, you will look like a dinosaur if you're not superb at delivering to home a really exciting online experience," added the former CEO of Canadian Tire Corp. Ltd., which is just beginning to offer home deliveries.
But in Sobeys's cost-cutting, it won't make blanket demands of suppliers that they lower their pricing but rather will work with vendors as partners and negotiate with them individually, he said. Loblaw recently angered many suppliers by telling them it will start demanding in January a 0.79-per-cent charge from its major vendors and 0.24 per cent from others.
Still, Metro's Mr. La Flèche said if a supplier is giving a rebate to a competitor "we expect to be treated fairly and equitably on the cost side."
Despite the challenges, Mr. Medline said Sobeys has enjoyed some early signs of progress in its turnaround efforts. It posted quarterly results in September that were better than expected. "We're probably six months ahead in terms of making progress on Project Sunrise and stabilizing the business than I could have hoped for when I joined."