Two Of The Big Three Food Chains Have Just Announced Layoffs Almost Simultaneously

It is certainly no coincidence that less than three months before Ontario’s minimum wage skyrockets from $11.60 to $14 (a 21% increase), two of Canada’s big three food chains have recently announced major plans to restructure operations, invest in productivity and reduce staff. As for the third player, the same type of announcement was made earlier in the year.

It all started with Sobey’s, arguably the worst of the three. The share price of Empire Company, its parent company, has stayed flat for the past five years. According to the Globe & Mail, “based on its net profit margin of 0.67%, Empire Company Ltd is less effective than other companies in its industry at turning revenues into bottom line profit.”  Many analysts pinpoint their 2013 Safeway acquisition as the root cause of most of their current financial issues (re: How Sobeys screwed up Safeway in a messy takeover that left empty shelves, massive losses, and drove customers away).

On May 4, 2017, Sobey’s announced a major all Canada restructuring program that will include Quebec operations and staff (source: TVA). The new chief executive officer is launching a three-year, $500-million cost-cutting initiative to revive the troubled grocer, although the extent of the significant job cuts will not be finalized until the end of the calendar year. Michael Medline said the company is launching “Project Sunrise” to simplify the business and generate $500-million in annual savings by 2020, allowing it to reinvest in its business to improve its sales and the bottom line (source: Globe & Mail).

“We have an aggressive goal to transform our organization, better serve our customers, empower our employees and assuredly move from defence to offence in the market,” Mr. Medline said.

A former Canadian Tire CEO who began in the top job at Sobeys and its parent, Empire Co. Ltd., in January, Mr. Medline, said the grocer will move to restructure the organization by eliminating “cumbersome regional duplication and complexity in decision making and operations.”

A few months later, on October 11, Metro announced that it would eliminate 280 jobs starting in 2021 as part of a $ 400 million investment program aimed at boosting the productivity of its distribution centers in Ontario (source : Huffington Post).

Modernizing and automating its network is expected to help eliminate 180 full-time and 100 part-time jobs. The announcement followed comments by the company that it would consider further automation of its operations to offset the $ 15 minimum wage increase in Ontario effective January 1, 2019 but then, Metro said this particular decision is unrelated to its efforts to offset added costs from Ontario’s rising minimum wage.

“This investment will enable Metro to continue its growth and expansion in the Ontario market,” Metro chief executive Éric La Flèche said in a statement. “With a new and modernized supply chain infrastructure, we will be even more responsive to the needs of our customers.”

Then, only five days later, it was Loblaw Companies’ turn to announce the layoff of 500 office workers, but said they still expected to create more jobs this year (source: Globe & Mail).

Some of the affected employees were informed almost at the same time as the public and many of the affected positions were eliminated immediately. The 500 jobs eliminated are at all levels of store support and include various management positions.

“Our business is at an inflection point, with growing pressures — from new costs and new competition — and with many opportunities to grow and evolve,” CEO Sarah Davis said, adding the company remains committed to reducing costs and running efficiently.

Loblaw also suggested previously it would be forced to reduce costs following the Ontario minimum wage increase (see here).

Upon hearing these CEOs, one would believe that business has never been that good and promising since they started cutting jobs. That’s to wonder why they hired staff to begin with!

Joking aside, the synchronicity of these announcements, especially the last two, in less than a week, is striking. It is certainly sending a strong message to the Ontario government which always rejected criticism that its excessive minimum wage increase could kill jobs.

While Sobey’s has ambitious plans to cut costs through a major restructuring of its management and decision-making process, Metro is sticking to greater automation for the time being. As for Loblaws, its layoffs announcement is certainly the most aggressive and the one that denotes the greatest sense of urgency. Is their situation that bad?

Of course, minimum wage aside, we all know that the traditional supermarket business model is under pressure and that demand is stagnant, even slightly weakening, and above all facing increased competition (Costco, Walmart, but also everywhere where ready-to-eat is now sold, in c-stores, for example). They have no choice but to look for growth internally, by providing the same level of products and services to customers but at a lower cost.

Now, all these announcements were made in a not-so-bad economy. What would it be should we experience an (overdue?) economic recession? Certainly quite ugly, for sure.

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