Chatter: Industry reaction to the Empire-Farm Boy deal

Such is the popularity of Farm Boy, that this week’s surprise acquisition of the 26-store chain by Empire was widely praised as a smart—though not cheap—addition by the parent company of Sobeys, FreshCo, IGA and other retail brands.

Following the announcement, a couple of clear messages emerged from the executives behind the $800-million deal.

One was that significant expansion for the chain would come fast, with an emphasis on the Toronto area. As if to emphasize the point, Farm Boy posted on Instagram the next day that a new store in Toronto’s Leslieville neighbourhood would be opening this winter. (Another store in Oakville, just west of Toronto, is already slated to open before that.)

The second message Empire emphasized was that it would not meddle with the winning formula perfected by Farm Boy co-CEOs Jean-Louis Bellemare and Jeff York, who will remain in charge. “We do not want to ruin the magic of Farm Boy by trying to integrate them,” said Empire CEO Michael Medline in a call with analysts. The claim felt like a pointed address of the widespread criticism of the company for how it managed its last major acquisition, Safeway in 2013.

Brand fans made it clear on social media they’ll be watching closely in the months ahead for any signs that their beloved grocery store is changing under new ownership, as will many working in the industry. Canadian Grocer reached out to a few retail and grocery experts to ask what they’ll be looking for.

Maureen Atkinson, senior partner at J.C. Williams Group

What will you be looking for at Farm Boy as it moves under new ownership?
“After Sobey’s experience with Safeway, I think they will likely have a much more hands off attitude. Also, they have a new CEO who comes from Canadian Tire, which knew how to run businesses side by side rather than integrating them,” she said, referring to Medline’s experience acquiring both Mark’s and Sport Chek. However, she believes Empire will also be looking to realize efficiencies from the deal. “A red flag for me would be to see Sobey’s branding starting to show up at Farm Boy or some of the unique Farm Boy elements being watered down because of cost.”

Could we see a response from Metro or Loblaw?
In a slow-growth sector, acquisition is a strategically sound option for major players. “Loblaw’s scored with their acquisition of T&T which got them a growing customer base. Metro bought Adonis so in fact both Loblaws and Metro have already done what Sobey’s did. In all cases, this is not necessarily expanding geographically but adding new customer bases to their traditional base. Hopefully some of what is unique and interesting about the acquired company can be absorbed into the larger acquirer without losing what has made the smaller player loved by their customers.”

Sylvain Charlebois, professor of food distribution and policy, Dalhousie University

What will you be looking for at Farm Boy as it moves under new ownership?
“It’s unfair to compare this deal with the acquisition of Safeway in 2013,” said Charlebois. “Motives are different. With Safeway, it was about scalability whereas with Farm Boy it is about growth. Safeway was integrated into Sobeys.” What’s more, the operational improvements being made across Empire through Medline’s sweeping Project Sunrise will also make it easier to grow Farm Boy, which will be good for the entire company. Medline said as much during the call with analysts describing the deal as part of the company’s shift from “defense to offence.”

Could we see a response from Metro or Loblaw?
“Not sure if Metro or Loblaw will respond. There are not many non-family independent grocers out there. That said, we could see grocers invest in the convenience store space. That is a possibility.”

Doug Stephens, retail expect and author  

What will you be looking for at Farm Boy as it moves under new ownership?
Stephens too expects Empire to look for efficiencies and synergies. “These might include management and staffing rationalization, supplier consolidation, systems integration, etc. However, problems can arise when the pursuit of such synergies begins to bleed into the brand and store experience that customers value,” he said.

“My other concern is Sobeys' stated goal of doubling Farm Boy’s business within five years. When growth becomes the mission, it can put considerable stress on people, processes and infrastructure and this can often result in a decline in service and customer satisfaction. Growth, at all costs, rarely ends well.”

Could we see a response from Metro or Loblaw?
“Given the localized nature of Farm Boy’s market, I don’t foresee a broad response from any competitors. However, it wouldn’t surprise me to see Loblaw and Metro initiate some marketing and operational actions within the Ottawa market to bolster their stores there.”

More chains, fewer independents a cause for concern

And while Farm Boy is, for now at least, an Ontario-only chain in the ultra-competitive Canadian grocery game, with three big legacy players still dominant but eager for scale to compete with newer global players such as Walmart and Amazon, the loss of another independent chain raises concerns at the Canadian Federation of Independent Grocers.

Farm Boy agreed to this deal because it is in the best interest of their business, said Gary Sands, senior vice-president, public policy and advocacy.

“But to me the loss of another independent is not something to celebrate,” he said. “This is a trend we don’t want to see continue.”

Factors like rising minimum wages and increasing energy costs hit independents with greater force than the big chains because independents don’t have the scale to offset those costs, he said.

Governments need to look for ways to help independent food retailers—the way it has looked for ways to help farmers, for example—or else independent grocers will struggle to retain their independence.