Issues Plaguing Sobeys Illustrate the Importance of Supply Chain Planning

July 14, 2016



In the past few months, we’ve written about Supply Chain lessons from Target’s Supply Chain misadventure, as well as other issues companies have had with their Supply Chains impacting the bottom line. Now, it looks like Supply Chain woes are impacting another major Canadian retailer: Sobeys and its parent company Empire.

A new report in the Globe and Mail details how Sobeys acquisition and subsequent write-down of Safeway stores in Western Canada has proven to be an albatross to the tune of $2.9 billion, as well as leading to the firing of Empire CEO, Mark Poulin.

It’s unfortunate to see any Canadian retailer struggling, but it’s not altogether surprising: the grocery industry is one of the most competitive segments of the retail sector. Sophisticated high-profile players Loblaws, Metro and Sobeys are competing for diminishing margins as customers increasingly turn to discount stores for their grocery needs, and American chains Wal-mart and Costco are putting even more competitive pressure on players in the industry.

The competitiveness of the grocery retail sector is part of what made it a high-risk, high-reward proposition for Sobeys to acquire Safeway – a proposition that in the beginning was meant to be a solution to the company’s lack of a bargain grocery presence in Western Canada. Unfortunately, it’s a proposition that, for now at least, looks like it has struck a blow to Sobeys as well as its parent company, Empire. Moving forward, the company will look to expand its Freshco stores into Western Canada, as well as to salvage the Safeway operation in that region.

Doubtless more will come out in the coming days about particular issues that led to difficulties in Sobeys’ acquisition of Safeway, but what struck out to us was the mention of specific Supply Chain and talent-related shortcomings related to the acquisition.

 As the Globe and Mail’s Tim Giladze reports, the Safeway Supply Chain faced major issues when Sobeys attempted to implement SAP in the chain to help with produce Procurement. Safeway’s previous parent company had handled Produce delivery in the past. Issues with the difficulty and complexity of this new SAP rollout gave Sobeys major headaches as it tried to integrate Safeway stores across its wider Supply Chain. The result was high prices and lower sales, especially in Alberta, where customers are even more price-sensitive in the wake of ongoing fallout from the drop in oil prices.

As we’re all about covering on the Argentus blog, Supply Chain is a massive success factor in business today, especially in industries as competitive as grocery retail. While product (such as private-label foods in this case) and marketing are still important, Supply Chain – and Supply Chain technology – are an increasingly-important source of competitive advantage. And an inability to update technology across an entire Supply Chain can lead to vast headaches. It’s a lesson that Target learned, painfully, a few years back.

As Supply Chain recruiters, another wrinkle in our story caught our eye: the fact that Sobeys opened regional hubs Edmonton, Winnipeg and other places, before relocating all head-office functions to a Safeway centre in Calgary. According to Giladze, this development sapped employee morale, which couldn’t have helped with adoption of the new Supply Chain technology. To us, this highlights the importance of talent retention in Supply Chain, where the market for talent is tight. 

Obviously the scale of these sorts of implementations is massive, and these Supply Chain failures probably shouldn’t be blamed on any particular individuals – most of whom are hardworking, dedicated, and eager to see their companies’ Supply Chains succeed. But issues like this underscore the importance of hiring the best Supply Chain talent, as well as keeping morale high – especially during complex technology switches – to retain those individuals. In any case, we wish Sobeys all the best moving forward in competing in this difficult landscape! logo_icon

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