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Sobeys to cut 1,300 jobs as it streamlines distribution operations

Closings of Sobeys distribution centres led Empire to record a $103-million charge in its latest quarter.

Todd Korol/The Globe and Mail

Sobeys Inc. is preparing to shave 1,300 jobs in the wake of its takeover of Safeway Canada as the country's second-largest grocer looks to consolidate its distribution and office operations and cut costs.

The retailer is closing three of its distribution centres and launching a new one as well as an expanded one in the next couple of years, Marc Poulin, chief executive officer of parent Empire Co. Ltd., told analysts on Thursday.

Those closings and the job losses, including some at its offices, resulted in Empire recording a $103-million charge in its latest quarter.

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Sobeys' new distribution centre is in Rocky View, just north of Calgary, which the supermarket retailer bought last month from insolvent Target Canada for $50-million and will update and partly automate, Mr. Poulin said.

"We remain committed to reducing costs wherever possible across the organization," he said.

Sobeys and other grocers feel the heat to slim down their costs as they take on U.S. global behemoths Wal-Mart Stores Inc. and Costco Wholesale Corp., while Canadian leader Loblaw Cos. Ltd. sharpens its game.

To bolster it business, Sobeys acquired Safeway Canada for $5.8-billion in late 2013 and, several months later, Loblaw scooped up Shoppers Drug Mart Corp. in a $12.4-billion deal, both pledging big savings over the coming years.

Sobeys cut $145-million in costs in the past fiscal year, Mr. Poulin said. It set a goal in 2013 of generating $200-million of "synergies" in three years.

Still, with food prices of meat and other products rising and consumers often "trading down" to discount chains, especially in oil-industry-squeezed Alberta, Sobeys faces a challenging landscape, retail analyst Kenric Tyghe of Raymond James said this week.

"While Empire remains well positioned to achieve its targeted end-of-year-three synergies of $200-million, the near-term macro-headwinds are not insignificant," Mr. Tyhge said.

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Last year, the retailer announced it was shutting 50 stores, about 60 per cent of them in Western Canada, and axing what industry insiders estimated were "thousands" of jobs. The moves triggered $169.8-million in restructuring costs.

It closed an ice cream and cheese manufacturing plant in Winnipeg, consolidating production in a facility in Edmonton and cutting 50 jobs.

It also eliminated last year about 50 to 60 accounting and other jobs in regional offices in Calgary and Rouyn, Que.

In its upcoming moves, it will close its Milton, Ont., distribution centre after its expanded automated centre in Vaughan, Ont., launches in October of 2016, spokesman Andrew Walker said.

And its Calgary 42nd Avenue centre will close after its recently acquired former Target distribution centre opens in mid-2017, he said. It expects its King Edward centre in Winnipeg to close early in 2016.

In its fourth quarter, the company reported same-store sales, excluding fuel sales, rose 2.1 per cent. Those sales at stores open a year or more are considered an important measure of retail health.

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The company also this week closed its $24.5-million deal to acquire some of Co-op Atlantic's food and gas businesses.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More


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