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Sobeys Inc.

Sobeys Inc.

115 King Street
Stellarton, Nova Scotia B0K 1S0
Canada
Telephone: (902) 752-8371
Fax: (902) 928-1671
Web site: http://www.sobeys.com

Public Company
Incorporated:
1946 as Sobeys Stores, Ltd.
Employees: 75,000
Sales: CAD 12.19 billion ($9.68 billion) (2005)
Stock Exchanges: Toronto
Ticker Symbol: SBY
NAIC: 422410 General Line Grocery Wholesalers; 445110 Supermarkets and Other Grocery (Except Convenience) Stores

Sobeys Inc. is one of Canada's top grocers. The company operates more than 1,300 stores under the IGA, Sobeys, IGA Express, and Price Chopper banners in all ten provinces. Sobeys also has an extensive wholesale distribution business in addition to its retail supermarkets. The acquisition of the Oshawa Group in 1998 tripled the company's size. Sobeys has become Canada's second largest food distribution business. Empire Company Limited, controlled by the Sobey family, owns 68 percent of Sobeys Inc.

ORIGINS

Sobeys Inc.'s story begins in 1907, when John William Sobey acquired a meat delivery business in the coal mining and railway town of Stellarton, Nova Scotia. In 1912, his brother Charles joined him and the two set up their first store, a two-story structure built from logs hewn at the family farm; the second floor served as a residence. The sales area measured 800 square feet. Charles left after a year to become a lumberjack in the Yukon. However, the business would continue to be family-driven throughout the rest of the century.

J.W. Sobey's son, Frank, is credited with expanding the butcher shop into a full-fledged grocery store in 1924; the younger Sobey was taken on as a partner within a couple of years. Frank Sobey was also mayor of Stellarton, and for a brief time owned an interest in a theater. By 1939, the Sobeys had a chain of six stores.

POST-WAR EXPANSION

The firm was incorporated as Sobeys Stores, Ltd. on April 18, 1946. The eight shops, one warehouse, and one bakery of neighboring rival Barkers Stores, Ltd. was acquired soon after for about CAD 159,000.

Around this time, Frank Sobey also acquired Empire Company Ltd., which had some land he had been interested in for his stores. Empire, named after a theater it had owned, would become the family's investment company.

In August 1947, Frank Sobey opened the first modern supermarket in Pictou County, Nova Scotia, which was originally called "Sobey's Wholesale Groceteria." The format, developed in the United States in the 1930s, had spread to Canada through the Dominion and other chains. Unlike their predecessors, the stores were self-service and did not offer credit or delivery. What they did have was low prices.

According to his biography by Harry Bruce, Frank Sobey picked up the idea while touring America with his wife in 1940; his plans were delayed for the duration of the war. Sobey's competitors and even his father scoffed at the idea. However, it was an instant commercial success, drawing throngs of housewives to its opening in a pattern that would be repeated elsewhere. Sobey's original supermarket, Store Number 25, measured 6,150 square feet.

Sobeys expanded throughout eastern Canada in the 1950s and 1960s. The company had sales of CAD 8 million at 17 stores by 1956. In 1960, the giant Weston-Loblaw group bought a 40 percent share in the company for almost CAD 1 million, according to Harry Bruce's biography of Frank Sobey.

LAWTON'S ACQUIRED IN 1966

Sobeys parent Empire Co. acquired Lawton's Drug Stores Ltd. in 1966. Lawton's had been started as a single pharmacy in Halifax. In late 1996, Sobeys merged its management with Lawton's, which then had a few dozen branches in Atlantic Canada.

Sobeys' sales were nearly CAD 93 million in 1971. By this time, Frank Sobey's three sons, Bill, David, and Donald, had become involved in running the business or the Empire Inc. investment company.

Sobeys Stores Ltd. had sales of CAD 237 million in 1977. During the year, the family's Empire Company Ltd. launched a takeover attempt of M. Loeb, Ltd., a diversified Ottawa food wholesaler four times the size of Sobeys. This started a bidding war which ended with control of Loeb going to the fast-rising Provigo Inc. of Quebec. Empire, the family's investment company, however, soon amassed a 25 percent holding in Provigo. In 1980, it bought back Weston-Loblaw's holding in Sobeys; a couple of years later, some of the Provigo shares were sold to Caisse de Dépôt et Placement du Québec, for a handsome profit.

Frank Sobey died in 1986, leaving Sobeys Inc. and Empire Co. in the hands of his three sons. By the late 1980s, Empire owned 100 grocery stores in Atlantic Canada (including its first Sobeys store in Ontario), as well as 56 Lawton's Drug stores, 26 shopping centers, 22 theaters, and other holdings, noted Toronto's Financial Post. Donald Sobey, the eldest son, liked to tell interviewers that the quality of management was a key to the group's investment choices. Empire was still operating from the same building where J.W. Sobey had set out as a butcher. Sales had passed CAD 500 million in 1983 and were more than CAD 1 billion in 1987.

OSHAWA ACQUIRED IN 1998

Sobeys executed an audacious takeover in 1998 that gave it national reach for the first time. It acquired The Oshawa Group Ltd., a grocery distributor based in Toronto, in a CAD 1.5 billion leveraged buyout. Oshawa was twice Sobey's size. It operated most of the IGA supermarkets in Canada. The purchase added more than 800 stores, making Sobeys Canada's second largest grocery chain after Lowlaw Cos. Ltd. Sobeys annual revenues lept to nearly CAD 10 billion. A new public entity, Sobeys Canada Inc., was created in the Oshawa purchase; this was soon renamed Sobeys Inc.

Oshawa had started 100 years earlier delivering fruit from a horse-drawn wagon. In 1949, Ray Wolfe acquired what was then known as Oshawa Wholesale. A couple of years later he brought Chicago's IGA grocery chain into Ottawa. Oshawa went public in 1957 and entered the retail trade in 1971. It had assets of about CAD 800 million and more than 100 food stores under the banners IGA Dutch Boy, and Food City by the time of Wolfe's death in 1990. After an aggressive expansion program in the mid-1990s, Oshawa underwent an extensive restructuring that did away with many nonfood assets, such as drugs stores and a laundry business, right before its acquisition by Sobeys.

COMPANY PERSPECTIVES

At Sobeys Inc., our focus is clear and steadfastwe are focused on food, driven by our fresh expertise, supported by superior customer servicein the right-sized, right format stores for each individual market we serve. Our passion for foodsupported and enabled by processes and tools that engage our people to get the job done wellsets us apart in a highly competitive marketplace. Our customers see and feel the difference, and their growing patronage is driving our sales and earnings growth.

NEW LEADERSHIP IN 2000

William G. (Bill) McEwan, formerly with Great Atlantic and Pacific Tea Co. Inc. (A&P), was hired as Sobeys president and CEO in late 2000. When David Sobey, grandson of the company founder, retired as chairman in 2001, he was replaced by Sir Graham Day, who had previously led such eminent UK firms as British Aerospace, Rover Group, and Cadbury Schweppes.

In early 2002, Sobeys sold off its SERCA Foodservice business, which it had gained in the Oshawa purchase, to Houston's giant SYSCO Corporation. This allowed Sobeys to concentrate on its grocery business while paying down some of the CAD 1 billion debt from the Oshawa acquisition. The company was also maintaining readiness for other potential acquisitions.

Sobeys was whittling its more than 20 banners down to a handful of key shopping concepts: the full-service stores of Sobeys (and IGA Extra in Quebec); Sobeys Express convenience stores; smaller IGA stores; low-price Price Chopper outlets; and customized markets for rural areas. Sobeys avoided the trend towards ever-larger superstores, but was allowing the Bank of Montreal to set up branches in some of its supermarkets.

In 2004, the company paid CAD 65 million to buy Commisso's Food Markets Ltd., a small southern Ontario grocery chain, as well as Commisso's Grocery Distributors Ltd. (Another unit of Empire Co. was acquiring related properties holdings for CAD 42 million.) This added 15 stores, helping to bulk up Sobeys' involvement in Ontario, though it still had relatively few stores in metropolitan Toronto.

In 2005, Sobeys attempted to buy A&P Canada, which operated Dominion stores in Ontario, but was outbid by Quebec's Metro Inc. The company shifted its expansion efforts into building new stores and upgrading existing ones.

Sales exceeded CAD 12 billion ($9.7 billion) in the 2005 fiscal year, rising 10 percent. The company had 75,000 employees at 1,314 stores scattered across Canada's ten provinces. These were supplied by 23 distribution centers. Eight million Canadian households in more than 800 communities shopped Sobeys' various stores during the year. In 2005 the company streamlined its private label offerings under the Compliments brand and turned around its Western Canada business.

In 2006 Sobeys was converting stores into one of its five new formats. Its "smart retailing" strategy applied the kanban or continuous replenishment concept of Japanese-style manufacturingto its produce and bakery departments. Like other supermarket chains, it was preparing for Walmart to finally bring its Supercenters into the Canadian market, though officials did not appear overly worried.

PRINCIPAL DIVISIONS

Sobeys Atlantic; Sobeys Ontario; Sobeys Québec; Sobeys West.

PRINCIPAL COMPETITORS

Loblaw Cos. Ltd.; Metro Inc.

KEY DATES

1907:
J.W. Sobey forms a meat delivery service in Stellarton, Nova Scotia.
1946:
The company is incorporated as Sobeys Stores, Ltd.
1947:
Sobeys opens its first modern supermarket.
1966:
Lawton's Drug Stores are acquired by Sobeys parent, Empire Co.
1983:
Sobeys sales are more than CAD 500 million.
1987:
Sales exceed CAD 1 billion.
1988:
Sobeys enters the Ontario market.
1998:
The acquisition of the Oshawa Group makes Sobeys the second largest food distributor in Canada.
2002:
SERCA Foodservice sold to SYSCO Corporation.
2005:
Sobeys begins to streamline store formats and private label brands.

FURTHER READING

Anderson, Mark, "Subject: Sobeys Inc.," National Post Business, September 2003, pp. 30-32.

Beres, Glen A., "Oshawa's Expanding Agenda: Despite a Host of Challenges, Canada's No. 3 Food Distributor Is Honing a Strategy for Growth," Supermarket News, June 19, 1995, pp. 1ff.

Bruce, Harry, Frank Sobey: the Man and the Empire, Toronto, Ontario: MacMillan, 1985.

, "The Grocery Kings from Stellarton," Reader's Digest (Canadian), January 1987, pp. 55ff.

, "The Sobey Boys Meet the Man from Provigo," Canadian Business, November 1985, pp. 87ff.

"CEO/Company Interview: Douglas B. Stewart, Allan Rowe; Sobeys, Inc.," Wall Street Transcript, November 29, 1999.

"Corporate Parent in Midst of Transforming Business Model," Chain Drug Review, May 1, 2006, pp. 204f.

Gattuso, Greg, "Oshawa Group Returning to Its Food Roots," Supermarket News, June 1, 1998, p. 12.

Gibbens, Robert, "Sobeys Aim Well Beyond the Wildest Dreams; Royal Family: Takeover of Oshawa Would Put Them Second to Loblaw," National Post (Toronto), October 29, 1998, p. C8.

Henderson, Jennifer, "'People' Key to Sobeys' Empire," Financial Post (Toronto), Sec. 1, February 29, 1988, p. 7.

Kimber, Stephen, "Bag-Boy Calls," Report on Business Magazine, October 2003, pp. 67ff.

"Lawtons' Flourishes Under Sobeys' Wing," Chain Drug Review, April 26, 1999, p. 248.

McFarland, Janet, "Sobeys Quietly Empire-Building: Grocery Unit Makes Inroads in Ontario," Financial Post (Toronto), Sec. 1, December 4, 1993, p. 8.

"Oshawa Chairman Ray Wolfe Dies at 72," Supermarket News, January 22, 1990, p. 4.

"Parent Company Fortifies Position in Canada," Chain Drug Review, April 28, 2003, p. 230.

Shaw, Hollie, "Sobeys Doesn't Need A&P, CEO Says: Reassures Investors in Wake of Loss to Metro in Bid War," National Post's Financial Post & FP Investing (Canada), September 21, 2005, p. FP7.

"Sobeys Connection a Boon for Lawtons," Chain Drug Review, October 14, 2002, pp. 66f.

Suhanic, Gigi, "Sobeys Pays $65M for Commisso Grocery Stores: They're Acquiring More Volume in the Ontario Market," National Post's Financial Post & FP Investing (Canada), December 4, 2003, p. FP3.

Zwiebach, Elliot, "Sobeys Goes National," Supermarket News, February 4, 2002, p. 12.

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