In 1998, Paul Sobey was in his early days running the family holding company in rural Nova Scotia when he pulled off his first mega-deal – a takeover that almost quadrupled the size of the Sobeys supermarket business and gave it a national presence.
Fifteen years after the family’s life-altering bid for Oshawa Group and its IGA chain, Mr. Sobey is at it again.
Still CEO of Sobeys Inc. parent company, Stellarton, N.S.-based Empire Co. Ltd., Mr. Sobey spearheaded this week’s $5.8-billion deal for the 213 Canadian Safeway stores, entrenching Sobeys as No. 2 in the supermarket stakes behind Loblaw Cos. Ltd. and making it a powerhouse in the West.
“The Oshawa Group [purchase] was transformational and the same thing is happening here,” said the fourth-generation scion of the family retail dynasty.
Mr. Sobey expects few big surprises from the Safeway portfolio. “We know these assets,” he said. “We could have told you a long, long time ago what [Safeway store property] was owned and what was leased.”
Indeed, Mr. Sobey, 56, had been contemplating the Safeway Canada takeover for more than a decade, while taking steps to strengthen his company and not repeat the mistakes of the past.
In the years following the Oshawa Group combination, Sobeys grappled with an information technology debacle resulting from efforts to install an enterprise software platform across the business.
It was a disaster, Mr. Sobey acknowledged, not because of the Oshawa Group deal but of the difficulty of taking on so much at once – “a bridge too far,” he calls it.
The company is a lot better now at change management, he argues, whether it’s installing big technology systems or integrating acquisitions.
At the time of the software crisis, “management lost control of the system and we had to step back and look at it. We learned from that – with tremendous governance controls and board oversight.”
Over the 100 years since his great-grandfather opened a butcher shop on little Stellarton’s main street, the Sobeys have learned a lot from their mistakes. “That is how you grow and develop. If you don’t make mistakes, you’re not making decisions.”
Mr. Sobey is in the same job, but a lot has changed in 15 years. The competition is tougher, not just from Canada’s Loblaw and Metro but U.S. discount leviathans Wal-Mart Stores Inc. and Target Inc. Sobeys Inc., in fact, will be both Target’s rival and its partner, as the incoming U.S. chain’s Canadian grocery supplier.
The new deal stands to propel Sobeys’ retail arm to almost $25-billion in annual revenue, compared with $11-billion after the Oshawa Group deal. The company holds pharmacies, wine stores, convenience outlets, cinemas and gas bars, and a 44-per-cent interest in Crombie REIT – which Mr. Sobey expects to buy a chunk of the $1.8-billion in Safeway real estate (it has right of first refusal) and lease sites back to Empire.
The food and real estate businesses, he points out, “are joined at the hip.”
Mr. Sobey sees efficiencies such as combined procurement and aims to inject Safeway’s expertise in certain product lines, such as store pharmacies. He feels there is little overlap between the two companies, but concedes it is in the power of the Competition Bureau to determine what will be kept or shed.
A key change in Sobeys’ history, Mr. Sobey argues, was a move to streamline the complicated corporate structure. Until 2007, Empire was the controlling shareholder of another publicly listed retail company, Sobeys Inc. Now, there is just one public company, Empire, which owns all of Sobeys Inc., and that means better decision-making, he insists.
Another asset the Sobeys acquired with Oshawa Group was fresh management blood. Marc Poulin, a former Oshawa Group manager, is the CEO of Sobeys Inc. and a key architect of the Safeway takeover. Paul Sobey points out that he is the first internally developed CEO who is not a Sobey. (Mr. Poulin’s predecessor, Bill McEwan, was recruited from outside.) The hope is the latest acquisition will bring in a new pool of talent, he said.
He insists one thing will not change, despite the regional re-balancing: “Our head office is in Stellarton, N.S., and it remains so.” Such regional loyalty means a lot of travelling for Mr. Poulin. “Marc is based in Alberta, based in Ontario, lives in Quebec and Stellarton. You’ve got to understand the geography. It is easier to go to Mexico than across this country. As to where people are at a particular time , they are never in the office.”
His father David and uncle Donald, the driving forces of the previous generation, are still prominent board members. However, “we don’t have a situation where David, Donald or whoever, as a family shareholder, can say, ‘We’re not going to do that because I want to do this.’ Everyone is entitled to his views and acts in a responsible manner. That is why we can develop strong people.”