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Sobeys set to dominate grocery e-commerce in Canada forging alliance with Ocado Group

Sobeys, the Nova Scotia, a Canada-based entity is aiming at growing itself into a top player in the grocery e-commerce in the country through forging an alliance with the Ocado Group of the UK, according to media reports.While speaking at a conference call with analysts recently, Michael Meline, President and CEO, Stellarton, Nova Scotia-based Sobeys and its parent firm, Empire Co., said, "Our exclusive Canadian partnership with global e-commerce leader Ocado will give us the best strategic and sustainably profitable e-commerce infrastructure in Canada, positioning us to thrill our customers and take customers from our competition."As per the report, Ocado has core expertise in robotics and other emerging technologies, offering warehouse-based delivery services for retailers across Europe. What is more, the UK-based firm's alliance with Sobeys, firmed up as early as January this year, culminated in the firm's first entry into North America. Meline also said that Sobeys is contemplating on beginning the delivery of grocery products in the spring of 2020from a new customer fulfillment center, to be set up at Vaughan, Ontario near its existing warehouse. A fulfillment center of similar size that Ocado is already in operation in the UK, which has an estimated capacity of $500 million, noted the reports.Initial ForayMedline further said that the firm will roll out its service in the greater Toronto area before entering the other markets across Canada. At present, Sobeys is offering grocery delivery from store-picked orders in few areas of Canada, the company firmly believes that fulfillment-center based distribution is a better and a long-term solution.MarathonMedline said that on e-commerce, he sees this as a marathon and added that the firm was in the first hundred meters. He also said that the firm had made the decision to go for the win rather than a short-term answer.

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Sweeping InitiativesIn the meantime, Sobeys when the company kick-started a sweeping set of initiatives aimed at centralizing operations, besides cost reduction and enhancement of performance and termed it as project Sunrise, this has now started yielding positive results, noted the reports. As per the company's statement, the same-store sales logged a gain of 1.1% in third quarter, which eventually helped drive adjusted net earnings of Canadian $89.9 million (approximately US $69.5 million) in contrast with Canadian $34.6 million (the US $26.7 million) in 2017-18. Furthermore, the sales for the quarter, which ended February 3 showed an upward tick of 2.4% to Canadian $6.03 billion (the US $66 billion).Growth DriverThe Same-store sales gains were apparently driven by rises in basket size and what the firm termed as 'more disciplined pricing strategies', despite an inflationary climate as against the deflationary pricing strategies in 2017. Moreover, the firm reported an internal inflation rate of 1.6% in the quarter, citing few traffic slippages and a 0.5% dip in 'real' same-store sales, Irene Nattel, an analyst with RBC Capital Markets was quoted as saying by Supermarket News.com. She also added that the firm was witnessing heightened promotional activity from discount grocers in Canada. The company was also experiencing an impact from Loblaw distribution of $25 gift cards to compensate for what Loblaw had termed as a bread price-fixing scheme is introduced. Through three quarters, Sobeys reported that adjusted net earnings rose 78.1%, to $251.3 million Canadian ($194.2 million U.S.), on sales of $18.33 billion Canadian ($14.16 billion U.S.), an increase of 1.8%.“We had good comps this quarter as we benefited from inflation and better execution through better blocking and tackling,” said Medline, citing a strong holiday season, better service levels from warehouses to stores and improved merchandising, store execution and marketing. “Of course, we're not out of the woods yet,” Medline said and added: “We're still in the riskiest phase of transformation, but the long-term gain we're looking forward to is well worth any short-term bumpiness.”RestructuringMedline said the company has largely completed its organizational restructuring, which resulted in corporate staff reductions and a realignment of merchandising teams to operate more centrally. The firm also made progress on tackling the poor performance of its Western division, which included the Safeway stores acquired from Pleasanton, Calif.-based Safeway in 2013.DownsizingIn the most recent quarter, Sobeys said it would close ten of those locations and would commence rolling out its discount banner FreshCo to the Western region within the next nine months, pending negotiations with labor unions on revamped contracts for the FreshCo banner, while some of the closed locations could be converted to the discount format, Medline added.Sobeys currently operates 88 FreshCo locations in Ontario. Analysts have been supportive of the company’s efforts to expand its presence in the fast-growing discount grocery segment, the report further said.“Although Sobeys enjoys a solid position in the traditional food retail segment in Western Canada, Quebec, and Atlantic Canada, the company’s underrepresentation in the growing discount sector presents a significant challenge,” Nattel of RBC Capital Markets mentioned in a report.