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Thursday, September 21, 2017

Strategic Imperatives

In the fourth quarter of fiscal 2017, the Company launched Project Sunrise, a comprehensive three-year transformation intended to simplify organizational structures and reduce costs. The transformation is expected to result in approximately $500 million in annualized cost savings by fiscal 2020 that will allow the Company to grow its earnings and re-invest in the business, growing both its sales and earnings. The organizational structure changes will create a nationally managed company with the ability to leverage its $24 billion national scale. 

Including Project Sunrise, the Company is focused on four primary strategic initiatives:

Organizational Structure Changes

Changes in the Company’s organizational structure include collapsing multiple independent regions into a largely national, functionally-led structure. This will simplify the way the Company conducts business and will result in a reduced workforce. The intention of the transformation initiative is to address the complex organizational structure, which has resulted in significant duplication and lack of clear, defined accountabilities. This initiative will not only reduce costs, but result in an increased level of authority and scope for leadership, allowing for more nimble and responsive decision making to support the needs of customers and capitalize on changes in the marketplace.

The full redesign and execution of the organizational structure is expected to be completed by the end of fiscal 2018. As a result of this transformation initiative, the Company incurred costs of approximately $40 million in the first quarter of fiscal 2018. In total, the Company expects to incur approximately $200 million in one-time costs associated with severance, relocation, consulting and minor system developments, most of which is expected to be incurred in the first half of fiscal 2018.

Cost Reduction

Management has undertaken a detailed assessment of cost reduction opportunities available to the Company, including benchmarking its costs against other businesses, and is executing against a phased plan to permanently reduce its cost base. Execution against these cost initiatives is progressing well and it is expected that initial savings will be reflected in results in the third quarter of fiscal 2018. Cost reductions will be sourced from reductions in headcount arising from organizational structure changes and process improvement, targeting specific enterprise-wide efficiencies and productivity initiatives and simplifying how the Company collaborates with vendors while leveraging its purchasing scale as a $24 billion nationally managed Company.

Customer Focus

Significant work is underway to better understand Sobeys’ brands banner positioning, customers and marketing initiatives. Management is undertaking a comprehensive review of its customers, the relative positioning of its categories and store banners and will develop and implement a strategy that will improve its proposition to Canadian grocery customers, allowing the Company to compete more effectively and grow both its top line sales and margins.

West Business Unit

Challenges faced in the West business unit arising from the integration of the Canada Safeway acquisition have resulted in significant decreases in sales and profitability. The results of the first quarter showed improvement as store execution was stronger and promotional mix improved. There is a significant amount of improvement still required to regain customers trust and return this business to acceptable levels of profitability.

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