Sobeys pulls plug on dozens of ‘underperforming’ supermarkets

WATCH: Sobey’s to close dozens of grocery stores mainly in western Canada

Sobeys, the country’s second-biggest supermarket chain, is closing 50 grocery stores following a review of operations in the wake of its multi-billion dollar deal for Canada Safeway.

A majority of the closures, 30 or so, will be in Western Canada, the Nova Scotia-based company said in an earnings release on Thursday.

The number of jobs eliminated by the closures wasn’t disclosed.

The sum is almost certainly substantial, likely numbering  in the thousands, experts suggest. Union officials in Manitoba, where five stores are closing, said 300 jobs have been shed there alone.

Sobeys said the closures “logically follow the acquisition of Canada Safeway,” which was bought for $5.8 billion last summer.

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READ MORE: Sobeys, Safeway merger puts jobs at risk, experts say

Since then, the Canadian grocery giant has undertaken a “detailed full review” of its store network. The review identified 50 “consistently underperforming” locations across the country, Sobeys said.

“As hard as it was to make the decision, it will allow us to focus on stores with more potential,” Marc Poulin, Sobeys chief executive, said on a conference call.

Poulin wouldn’t specify which stores were closing where, simply saying it was a “mix” of banners which included Safeway and Sobey locations, as well as other second tier banners such as Foodland and IGA.

Experts were divided on where they thought the closures would be concentrated.

“We believe the bulk of the store closures in Western Canada will be underperforming Safeway locations,” Peter Sklar at BMO Capital Markets said.

CIBC analysts said however as many as 20 Sobeys-owned supermarket could be closed in Ontario, where competition has grown fierce this year.

A Sobeys spokesperson later said a total of six supermarkets were being closed in the province, including two in Toronto.

But the closures span the country, Poulin said on the call, with closures in Atlantic Canada and Quebec, as well.

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SEE MORE: A look at which Sobeys and Safeway locations are closing

Pressure from U.S. discount giants

Like other grocers, Sobeys is feeling the pressure being exerted by U.S. discount giants Walmart and Target who are aggressively looking at winning a bigger share of family grocery budgets.

A lower loonie is also hurting grocers who must make wholesale purchases of food such as meat and fresh produce priced in U.S. dollars.

READ MORE: Meet the guy who wants you buying groceries from Walmart

Sobeys is paying about $170 million in severance costs, real estate writedowns and other related one-time expenses.

But the closures will help the Atlantic Canada firm achieve its goal of shaving hundreds of millions in operating costs annually – and ultimately help it earn bigger profits.

“After all, it’s all about maximizing value for shareholders,” Poulin said on the call.

Sobeys and Safeway locations by province at the time the Safeway-Sobeys merger was announced. (BMO Capital Markets).

As part of the approval process in the Safeway acquisition, Sobeys agreed to sell off 30 other locations, all of which have been sold but one, Sobeys said Thursday.

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Adjusted profits and dividend rise

Sobeys reported a 37 per cent jump in adjusted profit for the three-month stretch between the start of February and end of April, earning $131 million compared to $95 million a year earlier.

Sales jumped nearly 40 per cent thanks to the addition of Safeway, to nearly $6 billion. Excluding Safeway, sales as existing Sobeys locations were flat.

The company hiked its quarterly dividend to shareholders by 3.8 per cent to 27 cents per share.

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