Empire Co. Ltd.’s announced acquisition of Ontario-based grocer Farm Boy is a good strategic move, despite the company’s difficulty navigating its last major acquisition that resulted in dismayed customers and a multi-year turnaround plan, experts say.
The parent company of Sobeys Inc. announced an agreement Monday to acquire Ontario-based Farm Boy. It values the enterprise, which includes 26 locations in the province, at $800 million.
Empire’s CEO attempted to reassure loyal Farm Boy customers that the company will not alter the formula that has made the fresh-food grocer a fan favourite.
“We do not want to ruin the magic of Farm Boy by trying to integrate them,” said Empire chief executive Michael Medline during a conference call with analysts Monday morning, calling it a “jewel of an asset.”
The company is unlikely to repeat its prior mistakes, say industry watchers, and is promising to leave much of Farm Boy’s successful model intact.
Farm Boy is “one of the most exciting, fastest growing and successful food retailers in the country,” Empire said in a statement.
The grocery chain developed a cult-like following for its fresh produce selection, prepared meals, and in-house brand products like lemon-garlic dressing, fermented garlic flowers and chocolate chip cookie chips.
Some of those fans were quick to take to social media and express their concern that Empire may change the beloved retailer too much.
Medline even addressed one tweet during the analyst call, citing a Farm Boy fan who informed Sobeys “you will be dead to me” if they “screw up” the grocery chain. He assured the tweeter the company does not plan to screw this up.
Empire’s strategy appears to be focused on maintaining Farm Boy’s status quo — leaving the existing co-CEOs in place and running it as a separate company — while accelerating its growth by doubling the chain’s footprint over the next five years.
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The plan is similar to other acquisitions in the industry. In 2009, Loblaw Companies Ltd. acquired T&T Supermarket, an Asian-fare grocer, in 2009. The chain is run by the founder’s daughter, Tina Lee, who serves as CEO.
“These larger companies are identifying these innovative, start-up style companies that have really carved out a niche in the trends that are driving consumer behaviour,” said Robert Carter, executive director of food service for market-research firm NPD Group.
Farm Boy does a really good job of bringing in customers with its prepared meals, as well as fresh and local food offerings, he said, adding it’s a smart strategic move for Empire to add the brand to its portfolio.
The acquisition delivers this loyal consumer base for Empire, said Kevin Grier, an agriculture and food market analyst with Kevin Grier Market Analysis and Consulting Inc.
Conventional grocery banners, like Sobeys, have been losing market share to discount chains, specifically Walmart and Costco, he said.
Their biggest hurdle is differentiating themselves from their competitors to entice customers through their doors, Grier said, adding Farm Boy offers that distinction.
“They managed to make it feel more of a destination,”he said. “Rather than just a cold grocery store, it feels welcoming there.”
Still, consumers have some reason to be worried as Empire’s last big acquisition did not go smoothly.
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Empire acquired the Western Canada grocery chain Safeway for $5.8 billion in 2013. Within six months, missteps such as the cancellation of a popular loyalty program, failure to keep certain items in stock and problems with back-office software were annoying customers and staff alike and led to plunging same-store sales numbers, a key metric in the retail space. The company eventually launched Project Sunrise, a three-year transformation project intended, in part, to reduce costs after struggling financially.
The Farm Boy acquisition is much smaller, said Mike von Massow, an associate professor at the University of Guelph. Safeway added 200 stores to Empire’s footprint, while Farm Boy has about two dozen.
That size will make it easier to integrate, he said.
“My guess is that this is a strong, regional brand and that the Farm Boy will continue… (Empire) will look to continue to deliver the types of customer value that those customers are looking for.”
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