Empire Co. Ltd’s blockbuster bid for Canada Safeway Inc. underscores an intensifying competitive landscape in the retail food sector, analysts say, a development that threatens to see jobs purged as the market place consolidates.
A day after Empire, which operates the country’s second-biggest grocery franchise in Sobeys, announced a $5.8 billion bid for Safeway, analysts were sizing up the potential “synergies” the merger would create – and what costs could be wrung out from overlapping functions.
“Sobeys indicated it anticipates achieving a $200 million annual run rate of synergies within three years,” BMO analysts noted.
About half of those cost reductions will occur in the first year, BMO suggested, by bringing together distribution systems and potentially eliminating overlapping jobs across head-office departments and potentially other areas through a “rationalization of administration and marketing functions.”
On an earlier conference call, Paul Sobey, chief executive of the Nova Scotia grocery giant, sidestepped the question of whether the deal will see jobs culled across the chain, which will stand at 1,538 retail locations and transform Sobeys into the leading grocer in Western Canada if the deal is approved.
“On the employee side of the equation our organization has continued to grow and develop over the years. We have need of great, talented people. There’s a great cultural fit as regards the two employee bases of the two organizations.”
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Asked more pointedly whether there’s plans to cut jobs, Sobey responded: “At this point in time, our focus is right on the people side of the equation and the cultural fit of the two organizations, period.”
The deal is expected to close by the fall after competition regulators review it.
Any plans to eliminate jobs would confront opposition from the United Food and Commercial Workers union, which represents workers from both companies and has collective agreements with each.
The union has said it’s reached out to Sobeys to discuss what impact the deal will have on its members.
Sobeys employs about 95,000 workers across the country. Safeway Canada, a subsidiary of Safeway Inc. in the United States, operates 223 locations between British Columbia and Ontario, but the majority of which – 168 – reside in B.C. and Alberta.
Empire’s bid is likely the first of what could be a string of deals among grocery chains fighting to maintain market share as other companies like Target, Wal-Mart and Costco push more aggressively into the business.
“We would project that more consolidation is on the way,” CIBC analyst Perry Caicco said.
With Safeway off the table, some analysts expect the country’s largest grocer Loblaw Cos. Ltd. to bid for smaller players, like Overwaitea in B.C., or even take a run at Shoppers Drug Mart.
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