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Old 06-12-2013, 07:27 PM   #1
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Sobeys Buy's Safeway In Western Push

I've never been to a Sobeys before, is this a good or bad thing? I wonder what this will do to Airmiles if anything at all.

Sobeys snaps up Safeway in western push - The Globe and Mail

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In a $5.8-billion deal that will reshape Canada’s grocery industry, Sobeys Inc. is buying Safeway Inc.’s Canadian division to beef up its western business and take on intensifying competition.

The deal, announced late Wednesday, will solidify Sobeys’ position as the country’s second-largest grocer and put pressure on Loblaw Cos. Ltd., the leading player in the sector, which has struggled to make gains over the past several years.

“The acquisition of Canada Safeway represents an excellent strategic fit, strengthening our presence in Western Canada,” said Paul Sobey, chief executive officer of Sobeys‘ parent company Empire Co. Ltd.

The agreement comes at a time of growing competition in food retailing as discount giant Wal-Mart Canada Corp. rapidly adds more grocery aisles to its stores and U.S. rival Target Corp. opens its first outlets in this country, raising the competitive stakes for everyone.

Major rivals Loblaw and Quebec-based Metro Inc. have also eyed a takeover of Safeway Canada, which has for years been seen as a potential acquisition target.

The deal puts Sobeys on firmer ground in the grocery wars but it faces the risk of getting distracted in the work of folding its newly acquired operations into its own.

“Now comes the hard part,” summed up Perry Caicco, retail analyst at CIBC World Markets.

The deal, which is slated to close in the fall, is expected to boost Empire’s bottom line (adjusted net profit per share) immediately, generating $200-million of savings annually within three years and half of that within the first 12 months, Mr. Sobey told a conference call.

As a reflection of how much Sobeys hankered after Safeway, Mr. Sobey revealed that he’s been circling his U.S. rival since 2000.

“We’ve been looking at Canada Safeway, as with other opportunities, since a long, long period of time,” he said. “We’ve very familiar with the assets.”

Kevin Grier, senior market analyst at the agri-business think tank George Morris Centre in Guelph, Ont., said the Sobeys takeover will provide it with much-needed critical mass and buying savings from its suppliers.

“This is likely to change the western competitive environment,” he said. “It has been a high-priced region with grocers keeping their powder dry and not stirring each other up too much.”

The landscape is in stark contrast to the lower-priced Ontario market, he said. “Western consumers might start to see some of the deals that Ontarians have been seeing over the past year or so.”

The acquisition would add 213 stores to the Sobeys chain, which already owns or franchises 1,300 stores under various banners including IGA, Foodland and FreshCo. Combined, the two chains will have annual revenue of approximately $24-billion compared with about $31-billion at Loblaw.

Marc Poulin, president of Sobeys, said the savings are expected to come from integrating and updating Safeway’s distribution and information technology systems and reducing buying, administration and marketing costs.

In addition to the grocery stores, Stellarton, N.S.-based Sobeys will add 199 in-store pharmacies, 62 gas stations, 10 liquor stores, four distribution centres and 12 manufacturing facilities. Safeway is predominantly a western chain, with 60 per cent of its properties in Vancouver, Calgary, Edmonton and Winnipeg.

Sobeys will pay for the deal through a series of equity and notes offerings, as well as $1-billion it plans to earn by selling Safeway’s real estate and then leasing it back. Crombie Real Estate Investment Trust – which Empire spun out to handle its real estate – has the right to make first offers on the buildings, Sobeys said.

Safeway Canada’s U.S. parent has struggled amid tighter competition south of the border, with Wal-Mart even a bigger player in its home base and Safeway’s profitable Canadian division a good way for it to raise money.

Safeway CEO Robert Edwards said the offer was unsolicited and “extremely attractive” to the company, whose profit margins have been squeezed in the fight for market share.

The company said it would earn about $4-billion from the deal after taxes, and will use half of that to pay down debt and buy back stock and the rest to finance other initiatives.
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Old 06-12-2013, 07:37 PM   #2
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No idea what to expect but me and my family have been Safeway shoppers forever... better keep dem Airmiles!
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Old 06-12-2013, 07:38 PM   #3
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I had to bag my own groceries at sothebys like a second rate citizen. sheesh. hahaha...
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Old 06-12-2013, 07:39 PM   #4
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I expect future downgrade in quality/price
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Old 06-12-2013, 08:00 PM   #5
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when sobeys bought thrifty foods it was all roses and norm business like always
Year to two years later most management quit from thrifty and customer service is brutal there and original thrifty foods vibe is gone
Will be interesting to see what happens with safe way
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Old 06-12-2013, 08:06 PM   #6
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meh.

i don't shop at safeway anyways....worked there for 7 years...brother worked there for 3....dad worked there for 35 before the store killed him.

i find it overprices and bad quality.

IGA ftw.
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Old 06-12-2013, 08:07 PM   #7
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Dude! I fucking love Sobey's! In as much as you can have affection for a grocery chain.

It's a Save-on equivalent. I mean, they are all the same, but Safeway tries to be that porsche style company with the somewhat nicer looking stores(the new ones), we'll offer to carry your stuff out to the car, and deliver stuff to old people's homes and pay cashiers $21/hr.

I think those days are gone. Now its cheap prices with decent quality. I was never really disappointed with Sobey's.

I think they'll be quick in changing the name in the fall. I doubt the US will want someone else doing work in their name.
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Old 06-12-2013, 08:08 PM   #8
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I sense a feeling of a love/hate relationship.
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Old 06-12-2013, 08:12 PM   #9
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I mean, they are all the same, but Safeway tries to be that porsche style company with the somewhat nicer looking stores(the new ones).
If Safeway Is Porsche, what is Whole Foods & Urban Fare? Ferrari and Lamborghini perhaps?
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Old 06-12-2013, 08:21 PM   #10
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If Safeway Is Porsche, what is Whole Foods & Urban Fare? Ferrari and Lamborghini perhaps?
Whole Foods is the McLaren F1. Beloved by all, at once untamed and elegant.

Urban Fare is the Marussia B1. Popular with nouveau-riche poseurs and no one knows about it except for locals.
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Old 06-12-2013, 08:23 PM   #11
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I've always liked safeway. Their butchers usually know what they are doing. The beef at Save on and Sobeys is always cut like absolute shit. Safeway is the only place you can get a good steak that isn't butcher shop prices. Other than that I don't notice much difference in the big box supermarkets. I usually buy produce at the smaller little markets. Whole foods is that stupid australian super car. It fucking sucks, and it costs 2-3 times as much as anything comparable. I can buy a free range hormone free chicken at market meats for 15-20 bucks or I can get the same thing at whole foods for around 40.
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seems like you got a dick up your ass well..get that checked
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Old 06-12-2013, 08:24 PM   #12
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only good thing about safeway is self cashier machines that are not retarded and large sandwiches
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Old 06-12-2013, 08:25 PM   #13
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I like Safeway and as a kid that's where my mom always took us but we don't shop there to feed our family because it's to expensive, same with IGA.

My mother in-law was a lifer there before she passed, worked there forever sort of like Dino's father.
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Old 06-12-2013, 08:26 PM   #14
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Urban Fare is the Marussia B1. Popular with nouveau-riche poseurs and no one knows about it except for locals.
How about a Hyundai? As in a base model Kia with a different badge.

Urban Fare is wholly owned by...

drumroll.

Pattison Group. Save-On Foods.
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Old 06-12-2013, 08:41 PM   #15
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IGA can be expensive, but they have good sales.

I like that IGA has special items (ie: almond yogurt, store-made soups, etc) and their oven-fresh bread is VERY good.

We buy our produce at the family owned store up the street....bought 3 bags full 2 days about for 12$. Can't beat that!
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Old 06-12-2013, 08:59 PM   #16
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Meh.

- Famous Foods in East Van for specialty items at bargain prices
- Donald's Market in East Van or New West for all-in-one Whole Foods type-grocer without the attitude, or the ridiculous prices
- Cioffi's in North Burnaby or Windsor Packing on Main for meats
- Red Apple Market in North Burnaby (Asian-owned, no nonsense) for produce needs
- Superstore or Shoppers Drug Mart for non-perishables

Done.
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Old 06-12-2013, 09:23 PM   #17
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Donald's Market at the River Market in New West is awesome.

I've noticed that the Save-on is selling more specialty\whole food items in New West on 6th. Its a smaller "community" store. Its not too bad.
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Old 06-12-2013, 10:10 PM   #18
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Meh.

- Famous Foods in East Van for specialty items at bargain prices
- Donald's Market in East Van or New West for all-in-one Whole Foods type-grocer without the attitude, or the ridiculous prices
- Cioffi's in North Burnaby or Windsor Packing on Main for meats
- Red Apple Market in North Burnaby (Asian-owned, no nonsense) for produce needs
- Superstore or Shoppers Drug Mart for non-perishables

Done.
Now the hipsters are going to invade those places. Thanks a lot.
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Old 06-12-2013, 10:17 PM   #19
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Safeway = Porsche
Whole Foods = Mclaren
Urban Fare= Marussia



T&T= ????

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Old 06-12-2013, 10:18 PM   #20
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How about a Hyundai? As in a base model Kia with a different badge.

Urban Fare is wholly owned by...

drumroll.

Pattison Group. Save-On Foods.
You best watch your woods fool!

Famous Foods ftw
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Old 06-12-2013, 10:23 PM   #21
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Agreed with Westohper, at least Safeway has a legit meat department still.
They have good beef.

Save-on seems to have better pork though.


I hope they fix the bakery. I can't stand their baguette and french bread there.
The quality is consistent at all of them, so I know they are operated well.
But the bread recipe is utter crap.

IGA has the best normal bread, but the Ace baguette at Superstore is by far my favorite. I feel a little retarded every time I have to get one and that's the only thing I buy. Wait in a Superstore line for a stupid loaf of bread.
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Old 06-12-2013, 10:32 PM   #22
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just go to walmart for everything
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Old 06-12-2013, 10:51 PM   #23
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ive become a fan of the new thriftys' popping up they're like a bigger Nestors market thats open 24/7

used to shop at safeway all the time but ever since they had that long strike years ago we never went back
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Old 06-12-2013, 11:18 PM   #24
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On the acquisition side of things...

$5.8 billion is $27 million per store.

That is a very, very high price to pay.

The supermarket segment, from previous case studies I remember, have median net profit margins of 1% to 2%.

So, Sobeys, in order to make this worthwhile, have to increase its net profit by $200 million per year for the next 29 years (interest and inflation not factored in).

So, Sobeys is assuming that each of the 213 stores have to earn (net profit) around $1 million per year for the next 29 years.

So, this means each of the 213 stores SHOULD have revenues of around $50 million to $100 million, which is very unlikely.

See this report:
FMI | Food Marketing Institute | Supermarket Facts

Average sales is $20 million for the USA supermarket industry, and I was right on the 1% net profit margin.

Sobeys have a high probability of NOT earning a fair future value and ROA and ROI.

Just from reading the article, one way Sobeys could benefit is that Sobeys could use Safeway's distribution centres and manufacturing facilities to open even MORE stores (either through the Safeway brand or the franchised brands).

But, if Sobeys does not leverage the centres and facilities by opening more stores, then this is a bad deal for Sobeys.

Even Safeway CEO USA admitted that the deal was “extremely attractive” and sold to Sobeys.

On paper any way, it simply looks like Sobeys have yearned for Safeway since 2000 and wanted to pull the gun by using cheap money (low interest from the notes) and high-priced Sobeys equity.

If the net profit margin is 1% to 2%, then the low-interest notes used to finance this acquisition MUST be lower than 2%.

Otherwise, Sobeys is better off just putting the $5.8 billion in low-yield investments that offer more than the 2%.

Also, Empire (the parent company of Sobeys) has a current market cap of $4.6 Billion.

It's offering $5.8 billion to buy Safeway Canada.

That is more than twice it's capitalization.

It's highly leveraged or highly LBO with a high debt/equity ratio.

All in all, as stated previously, it is much too high a price to pay.

So, conclusion is: bad deal for Sobeys.

Great deal for Safeway USA.

Last edited by Marshall Placid; 06-12-2013 at 11:59 PM.
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Old 06-13-2013, 01:47 AM   #25
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Safeway = Porsche
Whole Foods = Mclaren
Urban Fare= Marussia



T&T= ????

T&T = mercedes + BMW

did you not see their richmond parking lot?
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