Winnipeggers will have fewer choices, but likely bigger stores in the long run, if the purchase of Canada Safeway by Sobeys is given regulatory approval later this year, experts say.
The ink on the $5.8-billion deal is barely dry but industry observers expect Nova Scotia-based Sobeys will close stores that are close to others -- many are across or down the street -- to improve efficiencies and reduce costs.
Sobeys' parent company, Empire Co., is on the record as saying it expects to find $200 million in cost savings during the next three years by integrating the distribution, information technology and procurement divisions of both grocers.
Consumers shouldn't expect to see their favourite store shuttered right after the deal receives the expected green light, John Winter, a Toronto-based retail expert, said.
He likened the situation to Zellers' 1998 deal to take over K-Mart in Canada, which saw Zellers operate both banners for a time.
"They had stores eyeball to eyeball. The leases are probably on relatively long terms but eventually one or both will be closed and a bigger one will be built," he said.
Despite Safeway's strong brand recognition in Western Canada, Winter doubts the banner will remain for long.
"You get a better bang for the buck when you advertise for one nameplate rather than two. Initially, they'll have to change the signage and layout (of Safeway stores) and do it the Sobeys way," he said.
It's unlikely Sobeys would want to follow the Starbucks model of having multiple locations at the same intersection, according to Michael Benarroch, dean of the I.H. Asper School of Business at the University of Manitoba.
It's not as if there's a plethora of competitors champing at the bit to move into soon-to-be-abandoned real estate, either.
"The only other player is Loblaws. There is nobody left to come in and fill those spots," he said.
"From a business case, you wouldn't have two stores owned by the same company three blocks from each other with the same clientele and the same products."
The Safeway stores are the most likely to be closed in the event of geographic overlap, as Sobeys has recently spent many millions of dollars opening new locations that have been tailored to their model, he said.
Neither company said much Thursday. Sobeys spokesman Andrew Walker said the transaction is under review by the Competition Bureau.
"We cannot presume to know the outcome of that," he said.
Brian Dowling, vice-president of public affairs for Safeway, said what happens to the Safeway banner and stores will ultimately be decided by Sobeys, which will acquire the rights to the Safeway name.
In the long run, Benarroch feels consumers are better served with more competition, not less.
"I don't think it's generally good that we go from three to two big food chains in Canada. With two companies competing against each other, we lose some variety. Each of the three big chains had its own unique nature, and customers had an allegiance to each one. There's a reason for that," he said.
Sobeys is already the second-largest grocery retailer in Canada after Loblaw Co. and will solidify that position by adding 213 Safeway stores from Thunder Bay, Ont., to British Columbia. It has 11 stores in Winnipeg while Safeway has 24.
Sobeys owns or franchises more than 1,300 stores cross Canada under such banners as Sobeys, IGA, Foodland, FreshCo and Thrifty Foods.
RBC analyst Andrew Calder said the deal requires approval under the federal Competition Act, which can take up to four to five months for complex transactions.
He said he expects the Competition Bureau will conduct a market-by-market review, which could make for a long process, given the scale and number of markets involved.
Sobeys' concentration appears heaviest in Alberta and Manitoba and it might have to sell some of the assets it will get from Safeway, Calder said.
-- with files from The Canadian Press
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