These days, retailers all across North America are trying to refocus their business strategies to survive and thrive through the global economic crisis. And in many cases, private label reorganization is involved. And although it’s tempting to oversaturate a private label program with every offering under the sun, in the end, a retailer has to focus on what it does best.
Stellarton, Nova Scotia-based Sobeys Inc. stands out as a company that is not just surviving the recession, but thriving in it as well. This reality is all largely a result of the company’s unwavering strategy: to focus on food.
Bill McEwan, president and CEO of Sobeys, believes this focus explains how the retailer has had industry-leading same-store sales for the last five years.
“On my watch, you’re never going to see a chainsaw [in our stores,]” he says. “You’re never going to see bath towels.”
Sobeys, which is privately held by the Stellarton-based Empire Company Ltd., is the second-largest food retailer in Canada. Founded in 1907 as a meat delivery business in Stellarton, the retailer now operates 1,343 stores (owned or franchised) across all 10 Canadian provinces under various banners, including Sobeys, IGA, Foodland, IGA Extra, Price Chopper, Thrifty Foods and Needs. It’s difficult to serve every region across a country as vast as Canada, but McEwan says Sobeys does this by offering the right products to the right regions via the right store format.
And Sobeys has a regional president and management team specific to each of the four regions it serves - Western Canada, Ontario, Quebec and Atlantic Canada. The retailer then breaks down each region further by offering stores in five different formats - or “services,” as it calls them - to serve the different sizes of communities and needs of each customer in those communities, McEwan says. The services are:
• Full service (Sobeys/IGA Extra). This type of store - between 45,000 and 49,000 square feet - sports a large deli; serviced seafood, meat and bakery departments; a large produce department; a floral department; a broad array of groceries; a large frozen food assortment; and more. The format often houses a pharmacy, too, which McEwan believes is crucial for building trust with customers.
• Community service (Foodland/IGA). This type of store serves smaller communities across Canada and is between 10,000 and 25,000 square feet. McEwan says this type of store is found in small towns, generally alone or against a single competitor. The store might not offer full-service support, but it still has quality produce, a quality meat department, a smaller deli, a smaller bakery and a smaller-but-adequate grocery assortment. Many stores under this model are franchised by local families, which builds a strong community connection.
• Fresh service (certain Sobeys). Making up the smallest percentage of Sobeys’ portfolio of store formats, this smaller urban format ranges between 5,000 and 25,000 square feet, with limited parking and a tight assortment. McEwan says Sobeys primarily entered this store type into the Toronto and Montreal markets, with a couple of locations in Calgary and Edmonton. It has an “on-the-go mentality” that caters to shoppers living in high-rise condominiums or working in office towers, and focuses a lot on prepared meals and salad bars, as well as ethnic offerings.
• Convenience service (Needs). This format, found in Eastern Canada, is a traditional convenience store format for customers making a quick stop to pick up basic products. McEwan says this format offers very few private label products.
• Price service (Price Chopper): This discount format - not to be confused with the Schenectady, N.Y.-headquartered Price Chopper that serves the United States - offers a limited assortment (4,000 to 5,000 SKUs), limited service and low everyday prices. This format generally offers the national brand at a low price, with the private label equivalent next to it at an even lower price. Depending on the location, you also might find a third brand, a locally produced product or an ethnic offering. McEwan says 50 percent to 55 percent of food shopping in Ontario is accomplished at discounters, making the province the most developed discount market in North America. Price Chopper, therefore, is an important banner to Sobeys.
The role private label plays varies from format to format. But overall, Sobeys has a unique title for the role its private label program plays: supporting actor. McEwan believes it’s important to put private label only in categories in which it can shine.
“It’s not all about our private label brand at all costs,” he says. “It’s about how our private label brand participates and earns loyalty by being properly positioned category by category, region by region, local market by local market, while still hanging together as a very large brand across the country.”
Sobeys’ private label program - which functions primarily under its Compliments brand - wasn’t built in a day. According to Belinda Youngs, chief marketing officer at Sobeys, a series of corporate acquisitions by Sobeys over the last decade (the Oshawa Group in 1998 and Thrifty Foods in 2007) left Sobeys with well-placed new locations, but a disorganized array of private labels - 22, to be exact. Realizing how hard it is to build equity, awareness and loyalty among consumers amid the confusion of 22 store brands, the company decided to consolidate the brands into one strong three-tiered private label program. Thus, Compliments was born.
Youngs says the starting point of Compliments is to make the national-brand-equivalent (NBE) product under the core Compliments name, then decide what other products in other tiers make sense. With this strategy, Sobeys built its value tier, Signal (until recently, Compliments Value), and its premium tier, Sensations by Compliments (until recently, Compliments Sensations), as well as various sub-brands for its NBE tier. These sub-brands include categories such as organic (Compliments Organic), eco-friendly (Compliments GreenCare), health-conscious (Compliments Balance) and child-friendly (Compliments Junior). Sobeys also offers food-related products (such as eating utensils and cookware) under its Compliments Culinaire sub-brand.
Youngs says Sobeys plans to limit itself to six or seven sub-brands within its private label architecture since more than that could confuse customers. Sobeys also draws its customers closer through community involvement, sourcing locally produced products for its store brands, and using consumer panels to determine what products should go on shelves.
Consumer Tested, Consumer Approved
John Hale, director of product appraisal and product development at Sobeys, is particularly proud of the consumer panels, which Sobeys began about 18 months ago. He says the panels involve regular Sobeys customers who are brought in and given a product that has passed the development stage, but
has yet to hit the shelf. The panelists sample the product and explain what they like or dislike about it.
If the product doesn’t meet the panel’s approval, it is either sent back for reformulation or scrapped altogether. Every product introduced by Sobeys passes through the panel. And Hale says no other retailer in Canada uses this testing method.
“It’s a really critical gate for us,” Youngs adds. “The important thing about the panel is that they can articulate why [the product] failed.”
For example, Youngs says, Sobeys developed a kid’s juice offered in a single-serve aseptic box, which the retailer believed was going to be a huge success because of the juice’s delicious flavor. However, when the product was brought in front of a panel of children, panel moderators were shocked at the reactions.
“What they said is that they loved the actual drink, but they weren’t actually able to open the juice box,” she said, noting that fitting the straw in the box ended up being too complicated for those in the juice’s targeted age group.
Youngs says typically, when a product is rejected, it goes back to the drawing board - that is, product development and quality assurance work directly with the product and packaging suppliers to fix whatever faults might exist.
Currently, the panel has 87 trained consumers, and Sobeys is looking to train more. The panel is such a success, Youngs says, that Sobeys has been offered funding from national brands looking to use it for their own brand development. But Sobeys always declines these offers.
“Obviously, we believe [the panel is] a real important, unique differentiating point for our private label, and we want to make sure that we’ve fully embedded it with our own brand,” Youngs says.
Some notable products that recently have succeeded with the panels and now have Sobeys’ customers raving include a Salmon Wellington made specifically for Sobeys’ Quebec locations; butcher-quality hamburger patties using a state-of-the-art European technology that locks in moisture; and corn-fed, air-chilled chicken from Ontario, which Youngs says is consistent with the company’s strategy of offering fresh, locally produced, high-quality products.
Sobeys currently offers approximately 4,500 SKUs in its private label program, Youngs says. About 200 of these products were introduced in fiscal 2009, and 2,100 more will come over the next 18 months. Although the retailer produces its Big 8 brand of water and soft drinks (sold in Atlantic Canada only) at its Stellarton facility, almost all of its other private label offerings are made through close partnerships with approximately 400 suppliers. These relationships are so close, Youngs says, that the suppliers are invited to sit in on the aforementioned panels to observe how well their products are received and what they can do to improve them.
Julie Powell, vice president of quality assurance and regulatory affairs at Sobeys, says the retailer works with its suppliers from day one when planning a new product.
“[We] work with them to sign off [on] a document which walks through our expectations in terms of quality, good manufacturing practices and, most importantly, food safety,” she says, stressing that food safety inspection quality criteria are consistent - they do not vary from tier to tier.
How well a product meets those three expectations determines whether it can leave the manufacturing facility and go on to be tested by the panels. Sobeys also recently introduced an interactive database, which Powell says is quite possibly one of the most detailed of its kind in Canada. The database can dig down to the subcomponent level to find out where each ingredient is obtained and how it fits into the product.
“We also can do the most appropriate risk analysis on it to make sure that those risks are mitigated,” Powell says.
Quality assurance is not dropped once the product is launched, either. Youngs assures quality standards are maintained throughout the life of the product.
Packaging also is crucial. Kristine Ramezani, design director of private label at Sobeys, says the company partners with more than 170 suppliers for its private label packaging. And Youngs says these partnerships allow Sobeys to provide its customers with the best product value possible. After all, too much packaging can destroy a product’s value.
“You can over-engineer a package in the name of innovation,” Youngs says, “and that doesn’t necessarily give [consumers] either the most sustainable packaging - which is our responsibility - or the best value for the product.”
Youngs says three standards must be met for product packaging. First, packaging must be able to perform its intended function. Second, it must be as sustainable as possible. Third, it must be commercially viable.
Sobeys also makes sure packaging functions well as a communication medium to the consumer. To ensure clear communication to both English-speaking and French-speaking Canadians, Sobeys prints each product’s sub-brand name and description in both English and French on the packaging. The word Compliments is spelled (and means) the same in English and French, giving a universal feel to the brand.
Overall, the package design process has to be very flexible - designers must have the ability to switch from category to category with ease. But while a design process this complex could prove to be a complicated task for some companies, Powell sees the challenge in a positive light.
“It’s an opportunity that most designers would not get: to touch 4,500 SKUs,” she says. “So it’s a designer’s heaven, actually - that’s the way we’re looking at the whole project.”
Staying the Course
Speaking of meeting challenges, Sobeys is taking measures to ensure that as the economy improves, it will keep the consumers who have switched to its store brands to cope with the recession. According to McEwan, one of the ways the company is doing this is by holding quarterly “town hall” meetings with its employees across Canada.
“It’s really important that our people are informed about where we are, but more importantly, what we need to do to continue to earn the business and maintain the momentum that we have,” he says.
McEwan says the combination of Sobeys’ relentless attention to retail execution, consumers switching from dining out to cooking in during the recession, and the company’s emphasis on food for its private label strategy worked to build that momentum. And with the strong, disciplined leadership team it developed before the economic downturn, Sobeys has the potential to succeed with its store brands even after the economy bounces back.
“At the end of the day, it just comes down to the fundamentals of good execution of a well-conceived strategy,” McEwan says. “And we think we can sustain the momentum.” PLB
Headquarters: Stellarton, Nova Scotia
Chief Executive: Bill McEwan, President and CEO
Banners: Foodland, IGA, IGA Extra, Needs, Price Chopper, Sobeys, Thrifty Foods
No. of Stores: More than 1,300 (owned or franchised) across Canada
No. of Employees: More than 75,000
Private Label Brands: Compliments, Compliments Balance, Compliments Culinaire, Compliments GreenCare, Compliments Junior, Compliments Organic, Sensations by Compliments, Signal
SIDEBAR: An Inspired Idea
What’s a retailer to do when it’s tired of distributing the same old standard flyer, and wants to offer its customers interactivity beyond clipping coupons? Start a magazine.
Back in 2005, Sobeys launched the first issue of Inspired, a magazine devoted entirely to Sobeys private label products. Each issue offers features ranging from recipes and entertaining tips to interviews with the chefs and food experts that make Sobeys renowned for its food.
The magazine - custom-published by Redwood Custom Communications, Toronto - is distributed quarterly in both a French edition (titled Inspirés) and an English edition. It is published quarterly, with each issue focusing on foods that reflect the upcoming season.
Belinda Youngs, chief marketing officer at Sobeys, describes the publication as “something between a flyer and a magazine.” She says the magazine has been a success, calling it the most important supporting vehicle Sobeys has had in the last five years.
“It supports our food strategy, as well as our private label,” she says.
With Inspired, Youngs is looking forward to the upcoming holiday season. In November, Sobeys will be launching the 12th edition of the magazine, a special holiday edition that she says will be a 64-page fully bound issue featuring a lot of great seasonal products. Instead of the usual mass distribution, the issue will be mailed to Sobeys’ regular customers and available in store. To be more environmentally conscious, Sobeys will offer a digital edition online, and only select customers will receive copies in their mailbox.
Youngs says introducing Inspired was no easy feat - a retailer can’t go from weekly in-store flyers to a full-color quarterly magazine overnight. By first creating a private label program based around the concept of quality food and quality food alone, and building up customer enthusiasm about these products, Sobeys eventually found the right time to launch a lifestyle/cooking magazine with the Compliments fan in mind. And the retailer still is taking things one issue at a time.
“You grow into it,” Youngs says. “You don’t just suddenly launch a 64-page food magazine and have any credibility with the consumer. Every edition is just [another step] in the long journey.”
SIDEBAR: Join the Club
Many retailers have rewards programs for which their customers can sign up to receive bonuses. Retailers benefit in return by being able to track consumer purchases and behavior.
Sobeys locations throughout Atlantic Canada and Quebec partner with Air Miles, a loyalty program that awards points to customers every time they spend a certain amount of money with their Air Miles card. Points can be redeemed for plane tickets, Sobeys gift certificates and other items. Bill McEwan, president and CEO of Sobeys, says Air Miles is a valuable program that strongly connects with the consumer.
However, the program cannot be offered in Ontario and Western Canada because of its exclusivity in those regions with a competing retailer. To get around this problem, Sobeys launched its Club Sobeys program in September 2008 for its banners across Ontario and Western Canada. Customers earn one point for every dollar spent on the card, and they can redeem points for plane tickets (through Canada’s Aeroplan loyalty program), grocery discounts and more. McEwan has been very happy with the results.
“I’ve said it probably a hundred times: It is well-conceived, well-developed [and] extremely well-executed,” he says.
According to McEwan, program performance has exceeded Sobeys’ expectations. And the real benefit for the retailer is the access to information and insights into customer behavior, which is helping Sobeys target its customers more productively and efficiently across Ontario and Western Canada, segment by segment.
“It’s the future,” McEwan says. “And we’re very excited about it.”