"Sobeys is selling its milk, yogurt and ice cream manufacturing operations in Western Canada for $356 million to Agropur, a Quebec-based dairy co-operative.
The sale includes a total of four plants: two in Edmonton and one each in Winnipeg and Burnaby, B.C.
Together the manufacturing operations employ 281 people, process more than 160 million litres of milk per year and generate about $400 million of annual revenue.
Agropur will license the Lucerne trademark from Sobeys and supply Sobeys, Safeway and IGA stores in the West through long-term supply arrangements.
The co-op's brands include Natrel, Quebon, Agropur, Sealtest and Island Farms and its 6,500 employees process more than 3.4 billion litres of milk per year at 32 plants across North America.
Sobeys is the national grocery division and main subsidiary of Empire Co. (TSX:EMP.A), which acquired the western dairy manufacturing operations as part of its purchase of Canada Safeway last year." [CBC]
The Canadian Broadcasting Corporation illustrates the story with a Sobey's banner.
I suggest an alternative graphic.
I wouldn't be posting this if it were an isolated incident, and you probably do not want to hear about the complicated context. Though you might be entertained by the email that told us that since Agropur was shorting 4 litre jug delliveries 30%, we should increase our orders by 30%. That's not how it works, guys.
In fairness, I should probably also wait to see if it's "growing pains." Truth to tell, I'm sure that it is. We also sold our bakeries to Canada Bread, and they didn't drop the ball. Now, admittedly, that's because our fresh bread shelves, like the yogourt shelves, have intermittently looked like this for years, but at least it hasn't gotten any worse.
The problem is that in the life of companies, especially supermarkets that live and die on the premise that you go there when you run out of milk, you only get so much time for growing pains. This was avoidable: we used to avoid it all the time. In the future, we will no doubt avoid it again. But. . . .
In the future where our relationship with Agropur has settled back into business as usual, we will no longer have dairy operations to sell off to generate a quick $365 million. Don't think that we didn't know what we were doing, either. We hoped that Agropur could handle the business, but there was a reason that we went into the milk business to begin with. The reason we went out of milk was $365 million.
What with linkrot and stuff, I should probably summarise that the company's financials were weak last spring, and the company told Bay Street that it was looking to cut jobs and costs. Financials for the last quarter of 2014 showed significant improvements.
Now: the reason I'm summarising my links is that this next bit doesn't seem to have been covered in the Canadian journamalism press at all:
For some reason, not a cut-and-paste friendly format.
Neither is this, from the Globe & Mail, still, thank God, doing actual real journalism:
These are not things of which my employer is unaware. In some remote, ideotypical alternative universe, the price of a stock reflects the value of a company. In that same universe, which quite clearly has no bearing on the way things are done in this one, a retail company's value depends on its sales. Therefore (in this universe), if sales are, in fact, falling, then so should be the shares!
This is not a good thing. Investments that lose value are bad investments. You should not own them.
In the case of food, it is not hard to understand the main driving force of sales. You look at your target demographic (Canadians), multiply the number by the calories required (adjusted by sex and age profiles), and you get your sales base. All other things (value added, competition, etc) being equal, static or declining calories consumption means declining sales.
I know, I know. The notion that Canada's population growth might be flatlining or even going negative is old, old news on this blog. It's still kind of a key point for retail planners. (If you can't pick it up on the crowded right hand side of the graph, the key takeaway here is that in the low-growth projection, which I find most plausible, but which at least should be the planning assumption, the Canadian population rises from 34,754,300 in 2013 to 39,994,000 or so in 2063, and then begins to decline quite quickly. In business terms, the Canadian population has basically ceased to grow. It should also be noted that because of changes in the population age profile, its calorie consumption will decline as population increases but also ages, but that might be getting a little too complicated.It's also fair to observe that by 2063 we may very well have much more serious issues to deal with.
Not to put too fine a point on it, but if your sales are going to fall indefinitely, there is no future for Canadian retail. You need to sell your Empire shares and buy investments that have a positive return. Government bonds have a positive return. Hiding money under your mattress at least avoids a negative return.
Needless to say, when fundamental issues of money are invoked, the problem ceases to be one which a retail company can fix. the buck is firmly passed to the government.
Is there a politician reading this? (I know, fat chance of that.) But, if there is, there's this guy, Jim Keynes. He has an idea how to fix it. Don't believe him? Look at the war. Really, any war, but World War II is the really good example.
So, if you're frustrated by the fact that your grocery store ran out of milk the other night, now you know what you should do. Start a war. Or something.