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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 ...

First introduced in 2003 and rolled out more widely in 2006, Urban Fresh appeals to busy professionals living in small square footage but on a grand scale. They rarely cook, but when they do, it's gourmet fare. They have little storage, so they often shop daily. They want organic, local, new and different. While GTA chains like Rabba and the Kitchen Table already serve this market, McEwan felt Sobeys could do it better. Dalimonte implies that Urban Fresh aspires more to the large-deli category of luxe GTA mini-chains Bruno's Fine Foods and Pusateri's. The 11 stores in Toronto, as well as two in Edmonton, range in size from 4,500-square-foot "convenience formats" to 20,000-square-foot locations like this one, and all the way up to 30,000. All are dotted around high-traffic areas with lots of nearby condo dwellers who usually walk to the stores-parking is scarce and rarely subsidized. Dalimonte describes the clientele as "transient": "Not everyone who shops here actually lives downtown. They may work here and shop during the day." Indeed, the store's rush times are weekday mornings and late afternoons.

The gregarious Dalimonte strolls through the store like it's her own kitchen, tasting samples and joshing with the staff. As we walk by a tester tray of specialty blue cheese on toast, she chows one down and observes: "It's a honey fig jam underneath. Yum!" The Sobeys emphasis on fresh is most visible here in the form of prepared meals. Near the centre of the store sits a large deli bordered by 30 metres of fridges filled with prepared foods. An in-house chef-certified, Dalimonte stresses-oversees a staff that whips up meals, pizzas and sandwiches to order. Across the aisle, a salad bar converts to full breakfast fare in the morning. The store even does corporate catering.

Dalimonte, another industry veteran lured from a rival, says that while an Urban Fresh may have fewer units of everything, in smaller serving sizes, it has as much variety-and in some areas, more-than a standard supermarket. By way of illustration, she asks: "Have you ever had a dirty chip?" Not the kind off the floor, she makes clear when she pulls down a bag of salt-and-vinegar Dirty Chips (a brand she found in an airport in the Caribbean).

It's a challenging format to operate, however. City bylaws limit truck delivery times, as does the need to keep vehicles from blocking traffic. The store on Toronto's busy downtown Yonge Street strip has only a small alley and no receiving docks, forcing staff to drop everything to empty each truck immediately. "It's like a ballet," says Dalimonte. Sobeys has its own fleet of smaller trucks to service its Urban Fresh locations, which require smaller, more frequent deliveries. The compact stores have no room to store garbage, and inventory is managed in individual boxes, not cases or pallets. And because so much of the traffic is walk-in, sales go up and down with local events or the weather.

Most critically, finding available locations is exceedingly hard. That's why, seven years after the first Urban Fresh opened, there are still only 15. "We're opening stores as fast as is reasonably possible," says McEwan. "But there aren't any downtown locations left!" Rival Metro scored some choice city-centre sites when it acquired A&P Canada's Dominion brand in 2005, and Dalimonte can't hide her envy when she compliments the Metro supermarket in the young, hip Liberty Village neighbourhood a few blocks west of this Urban Fresh outlet. Loblaws is chasing the urban consumer as well, next year planning to open a supermarket on fashionable Queen Street West, over a Joe Fresh store. As it hunts for existing locations, Sobeys is making do with "new build," signing leases with condo developers to situate stores in their buildings. And in B.C., it plans to use the 23-store Thrifty Foods chain it bought in 2007 to carry the urban format there.

While fresh, market-tailored assortments are winning converts to Sobeys, all three majors refined their strategies in the lead-up to Walmart Canada's entry into groceries, says Ken Chernin, an analyst with Jennings Capital Inc., "and all three are in excellent shape." Loblaws continues to gain market share and increase profits-in its most recent quarter, the company posted stronger same-store sales growth than Sobeys, according to one analyst. But to Sobeys, the game isn't about size. Chernin notes that Sobeys has focused less on expansion than on "sweating the assets" it has. As major retailers get sucked into the gravitational pull of general merchandise-with Loblaws carrying clothes, Canadian Tire adding food, Shoppers Drug Mart peddling laptops-Sobeys has opted to specialize in food. "We have absolutely no intention" of moving to big-box formats, says McEwan. When someone asks where to find the Dubliner Irish Cheese, they'll never hear, "Turn right at the power saws."

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