Grocers seek to restock the industry with innovation

Recent Canadian grocery sector layoffs are about redefining business models more than trimming costs

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Downsizing is never easy. And just weeks before the festive season, reducing staff is bad for morale. But industry changes are forcing Canada’s grocers to rethink store structures, including staffing.

Metro let 250 people go recently. Loblaws announced 500 layoffs. Then Sobeys said it was cutting 800 employees – about two per cent of parent company Empire’s total workforce.

Some analysts think Sobeys layoffs are about the company’s purchase of Safeway stores in Canada but there’s more to the story.

Empire acquired Safeway in 2013 for almost $6 billion after an apparent bidding war with Metro. Both companies wanted a better handle on the lucrative Western Canadian market.

But as the oil price slump shifted the economy, the merging of Sobeys and Safeway assets and the restructuring seemed poorly executed.

So Sobeys launched Project Sunrise earlier this year to help simplify its organization and reduce costs. Recent financial results suggest it’s working. Operating costs are lower, the Safeway problems seem more contained and financial results are getting better.

However, some stores continue to struggle.

Sobeys has a complicated and highly decentralized structure. Recent layoffs are being felt throughout the company, not just at Empire’s head office.

A decentralized structure helps when it comes to adapting to local-market conditions. But when food prices are under extreme market pressures, broad structural efficiencies are key.

So Sobeys still has a long way to go. Empire shares are up 34 per cent over the last 12 months, but its value is still about 10 per cent off three years ago. And Sobeys doesn’t have the luxury of time to improve results.

The industry-wide layoffs (more than 1,500 jobs) aren’t about minor strategic readjustments.

A fundamental shift is taking place and no grocery company is immune to the fluctuating market forces. And it’s not about the minor problem of higher minimum wages in some provinces. It’s about the increase in food space at Walmart and Costco stores, and Amazon’s entry into the food marketplace. Amazon isn’t just forcing grocers to raise their competitive game, it’s compelling them to think differently about the consumer.

Many consumers still want to see and touch products before buying them. But a growing number wonder if visiting a grocery store is the best use of their time. Young consumers who’ve grown up with the Internet would embrace buying groceries regularly online. Walking around a store and waiting in line to give their money to a clerk isn’t appealing.

Grocers realize they’re ill-equipped to deal with an evermore complicated marketplace. The industry has traditionally relied on employees trained to make intuitive decisions. But disruptive companies like Amazon consider intuitive decisions to be perilous.

Grocers typically have an abundance of data and market information, but little capacity to process it. But, slowly, more companies are hiring staff who embrace the power of data, with the help of artificial intelligence and predictive analytics. Data smartness is in, intuition is on the wane.

So recent grocer layoffs are really about redefining business models. Anticipating what consumers will do in the face of multiple options is critical. And putting needed automation into place requires skill sets that grocers haven’t, to this point, acquired.

We should expect more layoffs, and then many of these positions will be repurposed – even if that part of the story is little reported.

The grocery industry is preparing for a tsunami of change, driven by a number of forces, from the evolution of data sciences to the enduring lack of food inflation to the presence of competitors that don’t need to sell food to make a profit.

Grocers aren’t in panic mode but they know the coming wave of change is too big to ignore.

Sylvain Charlebois is Senior Fellow with the Atlantic Institute for Market Studies, dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University, and author of Food Safety, Risk Intelligence and Benchmarking, published by Wiley-Blackwell (2017).


Grocers hitting the refresh button

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