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Canada's Sobeys launching new discount format

by Tim Linen | May 20, 2010
VANCOUVER, BC — Canadian retailer Sobeys Inc. announced May 12 its further entry into the discount arena with the launching of eight discount supermarkets under the "FreshCo." banner in Ontario. Each of the stores was converted from the "Price Chopper" banner, which is another Sobeys' format.

The company claims to have “significantly retooled, refreshed and redefined discount food retailing” with this new offering. In a press conference via telephone with the media, Sobeys President and Chief Executive Officer Bill McEwan explained that the FreshCo. format represents new thinking and is vastly different than what currently exists in the discount landscape.

“This is discount done right,” he said. “We know we are out in front of the pack. We claim that ground proudly.”

In explaining the thinking behind the new format, Mr. McEwen said that a team of Sobeys executives examined the discount format specifically in Ontario and noted that while that segment has been gaining market share, it has not changed in at least 20-25 years. Sobeys said that discount retailers have grown to capture about 40 percent of the market with formats that are outdated.

The Sobeys team determined that “discount done right” would include building a new format from the ground up by listening to consumers and giving them exactly what they want. The research revealed that discount shoppers want low prices with fewer compromises. Hence FreshCo., Mr. McEwen said, has been built to deliver top quality at low prices.

During the news conference and question-and-answer period that followed, neither he nor FreshCo. General Manager Rob Adams specifically addressed how that would be done. But they did indicate that one strategy will be to cater the offerings of each store to the exact demographic of its patrons, which could result in savings by reduced inventories and reduced variety. However, the firm’s press release promised that FreshCo. will offer customers “a larger selection of quality products in a refreshingly different, modern and clean environment that is not typical of discount grocery stores.”

“Customers have consistently told us that they are tired of having to make the compromises normally associated with shopping at ordinary discount stores,” Mr. Adams said. “FreshCo. is about not having to make those compromises. We insist on the right product at a low price, meaning we won’t trade off quality for price and our prices are as low or lower than our grocery competitors. Our FreshCo. promise of 'Fresher. Cheaper.’ really says it all.”

Mr. McEwen said that FreshCo. has been specifically designed for Ontario, and while he promised rapid expansion of the brand in that province, he said that there are no current plans to expand into other Canadian marketing regions. He noted that Ontario has the largest multi-cultural population and that discounters have the greatest market share of any Canadian province. Dozens of Price Choppers will be converted over the coming months and years, he said, and Sobeys will also look for opportunities to build new FreshCo. outlets in Ontario.

Speaking specifically of produce, Mr. Adams said that each produce department would feature a multi-cultural table display of ethnic produce items customized to that specific store’s demographics.

During the press conference, both of the chain’s executives emphasized that the new stores’ appearance is a key component of how the banner is different from other discount operations.

“When entering a FreshCo. store, customers will immediately experience a vastly different and improved discount food store,” according to a company statement. “Customers will first enter the ‘Fresh Hall,’ where they are surrounded by an abundance of fresh produce. From there, they move onto a large assortment of local baked goods, which are baked daily for FreshCo. from community bakeries. Customers are then introduced to an impressive selection of Ontario cheeses and meats, before being led to a feature aisle with special savings opportunities on everyday items.”

Mr. McEwen indicated that these fresh departments would be the driving force behind the new format. He said that the store will not just be a place that features good prices on bulk items in boxes but will specialize in selling “triple-A meat and top-quality produce” at those same low prices. The company claims that FreshCo. is devoting more store space to fresh product than any of its discount competitors.

The company also said that it would source from local suppliers, including those that supply fresh seasonal fruits and vegetables from Ontario. Speaking at the Canadian Produce Marketing Association convention a day after Sobeys made its announcement, Carman Allison, a numbers cruncher with The Nielsen Co., said that the foray into this type of format makes perfect sense for Sobeys.

He said that surveys of Canadian shoppers indicated that they are going to continue to frequent discount outlets even as the economy improves. He said that this trend started before the recession began and will last after it passes. Mr. Allison indicated that the updated format with specific multi-cultural products also speaks to changing demographics in Canada, as the country is becoming much more culturally diverse. This trend is expected to continue for at least the next couple of decades.

In addition, discount shoppers on average are becoming more affluent and virtually all income segments are shopping that format in increasing numbers.