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(Simon Hayter/Simon Hayter for The Globe and Mail)
(Simon Hayter/Simon Hayter for The Globe and Mail)

How Sobeys is taking on Loblaws Add to ...

Let me show you the cheese!"

Sobeys Inc. executive Rob Adams strides briskly between bins of produce and beams before an array of more than 100 types of cheese-not package sizes or flavours, but types, from regional ricottas to the Dubliner Irish Cheese. This might not be noteworthy in a standard Sobeys, but we're inside a discount supermarket, the kind with pallets of product on the floor, where you go to load up on a week's necessities expecting minimal service and limited variety of stock.

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Up until early May, that's what you'd have found in this Mississauga store. It was one of 87 Price Choppers, scattered around mainly low-income neighbourhoods in Ontario cities, that Sobeys acquired in 1998 as part of the Oshawa Group Ltd. Since then, the chain has been the unloved step-sibling in the Sobeys grocery family-which includes IGA, the rural Foodland chain, organics-heavy Thrifty Foods in B.C. and the eponymous flagship-lagging well behind rivals No Frills, owned by Loblaw Cos. Ltd., and Metro Inc.'s Food Basics. Today, however, the banner above the door reads "FreshCo," announcing discount with a novel spin: focusing on fresh fare such as produce, baked goods and meats; catering to the neighbourhood's ethnic tastes; and offering more choice-including three times as many types of cheese as you'd find at a typical discounter.

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The new FreshCos-eight of which opened this spring on the western edge of the Greater Toronto Area-are a key part of an ongoing transformation that has put Canada's second-biggest grocer on a roll. While its $15-billion in revenues is just half that of market leader Loblaws, Sobeys has led the industry in same-store sales growth in the past five years. But it's in Ontario, long Sobeys' weak spot, where changes have been most dramatic. Hobbled by outdated warehousing and inferior locations, the Ontario operation accounts for only 25 per cent of the company's revenue, estimates CIBC World Markets analyst Perry Caicco, even though it's home to about 40 per cent of Sobeys' square footage.

The province is also where the company-a division of Stellarton, Nova Scotia-based Empire Co.-is most heavily pressing its positioning on fresh food. While FreshCo brings the focus to the discount sector, Sobeys Urban Fresh, another new banner, spins it for the upscale, downtown market. "Sobeys is probably the most successful grocer in Ontario at the moment," says George Condon, a consultant and former editor of Canadian Grocer magazine. "And they've done it by dedicating themselves entirely to making their supermarkets fresh-food stores."

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To regulars of this Mississauga store, it looks like a new company has taken over the space. That's intentional. "The most important thing about FreshCo is that it's nothing like Price Chopper, and in our view that's a positive," Caicco wrote in a recent report. For two decades, Price Chopper has been an unprofitable also-ran. Repeated turnaround efforts produced no lasting improvements. The chain's limited private-label offerings weakened its gross margins, and its one point of differentiation-a deli counter-proved an expensive and little-used feature. "FreshCo is a complete retooling of what we had," says Sobeys CEO Bill McEwan. "The discount model in Ontario hasn't changed in 25 to 30 years, with limited selection and a very routine shopping environment."

From the bright green accents to a layout that funnels shoppers into an expanded produce section, the store lives up to its moniker. Rob Adams, the discount division's general manager, notes that there is up to one-third more space devoted to fresh products than at other discounters, including double the linear footage of refrigerated produce counters. The deli section offers cut fruit, FreshCo-branded sliced meats and sandwiches. "It feels fresh and store-produced, but they're actually sourced from and prepared by outside vendors," he says. The bakery stocks breads from local bakeries. You'll even find fresh fish.

It's the multinational flavour of the offerings, however, that's most striking. From red bananas to Punjabi namak para snacks, the store is full of foods unrecognizable to most Canadians. Passing by thick stalks of sugar cane, Adams admits he's not sure what shoppers use them for, but they're apparently hot sellers. In the large aisle stocked with ethnic packaged goods, he pulls out a clear bag of nuts. "We found that in local grocery stores, the bestselling products are just clear bags with simple labels. So we developed that with a vendor. Now we're selling it authentically, and it's lower cost."

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