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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 ...

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While supermarkets have long carried small selections of ethnic foods, they didn't aggressively pursue immigrant communities, says Condon. Yet visible minorities already comprise about half the population of the GTA, and will represent one in three Canadians within 20 years. Recently, as more and more ethnic supermarkets have popped up, the grocery giants began to take notice, expanding their ethnic stock. In 2009, Loblaws bought T&T Supermarket, a B.C.-based chain that caters to Asian communities. Sobeys has opted to make ethnic food a core of its discount format, likely noting that immigrants tend to have lower-than-average incomes and larger-than-average families. This part of Mississauga, for instance, has a high proportion of South and Southeast Asian immigrants, and a growing Caribbean community. As we pass by the meat fridges, Adams pulls out a cellophane-wrapped container. "Here, take some for your dinner." Inside are four fresh pigs' feet.

Luring Adams-a 26-year veteran of the supermarket business, most of them spent in the discount sector-away from Loblaws' No Frills a year ago was a major coup for Sobeys, and he is credited with many of the FreshCo innovations. A discount store is a very different business model from a standard supermarket. It has half the labour costs due to the absence of delis, pharmacies and other service counters. As well, a FreshCo will carry a maximum of 10,000 unique items; a full-service Sobeys has 30,000. To test shoppers' reactions to the new format, last year Sobeys converted an empty store into a FreshCo "stealth lab," equipped with the new branding, fixtures and layout. The "controlled flow" design (think Ikea), a first for a Canadian grocer, was a source of some concern. It forces shoppers to pass through produce, bakery, meat and the ethnic aisle before they can get to other departments. McEwan says test shoppers liked the layout, but you can picture bottlenecks on busy days as people try to get to the milk or diapers.

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Still, Sobeys had to try new things, because Price Chopper was wasting a major opportunity. These days, more than a quarter of Canadians shop at discount supermarkets. In Ontario, where discounters are most heavily concentrated, 40 per cent of food sales come from this segment. Price Choppers' share of the roughly $10-billion in total discount sales is a measly 13 per cent, compared to 22 per cent for Food Basics and No Frills' 34 per cent.

Sobeys plans to convert most Price Choppers to FreshCos within the next 18 months. Ethnic and fresh foods, even at discount prices, offer better margins than mainstream groceries. As well, the company has added a new low-end line, named Signal, to beef up its private-label penetration. In the end, the discount division may end up smaller as Sobeys shutters some stores or switches them to other banners, says Caicco, but if sales go up 20 per cent, as he expects, the discount division's earnings before interest, taxes, depreciation and amortization could improve by 50 per cent. "FreshCo," he concludes, "is more about repairing a profit problem than taking market share."

If a full-service Sobeys is your basic sedan and FreshCo represents the family minivan, Urban Fresh is the Cooper Mini: compact, chic and pricey. Inside the year-old Urban Fresh store at the foot of a new condo tower near the Rogers Centre in downtown Toronto, the clientele is decidedly upscale-one of the hotelier/restaurateur Rubino brothers is over there fondling produce-and the exotic product mix isn't aimed at the ethnic consumer so much as the sophisticated foodie. You won't find just bok choy; you'll find gailan, and there's a display case stocked with 16 types of dried mushrooms. FreshCo may boast more than 100 types of cheese; here, in a space barely half its size, you'll find more than 300. "The Food Network has totally changed the industry," says Mary Dalimonte, Urban Fresh's general manager. "Ten years ago, people would look at Italian rapini and ask, 'What is it?'"

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