Northern Star

Sobeys' flourishing new banner in southern Ontario points to the future direction of the discount format.

The first impression of the FreshCo store in Oakville, Ontario — a burgeoning community in the Greater Toronto Area (GTA) where farmland is swiftly being overtaken by housing developments — isn't of a discount supermarket. And that's exactly how Rob Adams, GM of the FreshCo banner, a division of Stellarton, Nova Scotia-based grocer Sobeys, wants it.

An observation on the day of Progressive Grocer's visit to the inviting location that its presentation is more that of a well-appointed fresh-format store than of a price-impact banner boasting the cheapest prices in the market spurs Adams to respond, “That's the kind of niche we were trying to get at.”

This departure from the discounter norm is apparent from the first step inside the bountiful produce department, which is adjacent to the entrance.“What we've tried to accomplish in the produce area is to create a market feel” for a space that Adams characterizes as “a room of produce. Anywhere you look, whether it's the refrigeration cases on the sides, or the tables, you can see the whole department all at once.”Rows of colorful fruits and vegetables beckon from all across the section, which is generating what he describes as “nice and steady” business, despite the fact that PG's visit takes place on what would be a slow Monday morning almost anywhere else.

“We've done some things differently than most discounters do,“ says Adams, noting “quite a bit more refrigerated produce, which obviously adds to the freshness of the product.” Then there's the overall presentation, which he describes as “really sharp,” as a result of lowering the tables from the traditional 1-foot-higher scheme in many of the company's stores. “We wanted to do that so people could get a good view of the whole department, make it easier to shop and also see more product vs. a single display.”

Another shining example of the FreshCo difference is the department's spacious design, which is evident throughout the store. “We try to keep the aisles wider than what we used to have, for when it gets busy on a weekend and there's people stocking shelves” and, of course, “more traffic,” says Adams. “We also make the displays slightly smaller, so they'll hold less than we traditionally would have had in our old program, so that they turn faster, and they're fresher and replenished more often.”

Also noteworthy among the most prominent changes in the produce department of the former Price Chopper (the grand reopening under the new banner took place in mid-August 2010) is a wider assortment featuring a greater number of organics and ethnic items.

“We'll carry a few selected lines of organic produce,” explains Adams, the majority of which is bagged and packaged, and includes such staples as apples and carrots. “We try to buy locally whenever it's in season,” he adds, noting that during the summer, close to 70 percent of the store's volume is sourced from local farmers.

Oakville's locavores were no doubt pleased by the newly converted store's huge display of “Foodland Ontario,” the ongoing province-wide campaign to promote area-grown fruits and vegetables. “Outside at the side of the store, there was a tent set up just with locally grown product, and the signage all around the department displayed what was bought locally,“recounts Adams.

When it comes to providing ethnic produce,“you'll see each store is slightly different on what they would carry,” says Adams. “We cater to the [individual] market,” he adds, indicating the produce department's “mostly multicultural product” on display to court the dominant East Indian, Caribbean and Chinese residents in the surrounding community.

Along with such selections as sugar cane and coconuts, one of the more exotic offerings is the Altaulfo mango, a small, flat, oblong yellowish variety that barely resembles its cousins. “They're one of the best eating mangoes,” declares Adams, who possesses an impressive array of food product knowledge. “Chinese and East Indian [shoppers] really like them,” he says, adding that such items appeal to more than just their intended demographics. “You don't have to be ethnic,” emphasizes Adams, citing the impact of venues like Food Network on mainstream shoppers' tastes.

Equipped for Success

Despite all of its fresh, high-end touches, the FreshCo banner's commitment to the discount concept is paramount, insists GM Rob Adams during a tour of the Sobeys-owned chain's Oakville, Ontario, store.

“We try to do, wherever we can, some labor savings as well, because we are first a discounter,” he says. “We're the lowest-priced in the market. We check all our competitors, every week, and make sure that we are the lowest overall basket. So to do that, you have to have cost efficiency.” To illustrate his point, Adams indicates such labor savers as high-volume items displayed on skids and spring-loaded fixtures that automatically face up product.

Pointing out a collapsible cardboard wood-look display, he continues: “Even this, for example. This still looks good, but it's user-friendly. It comes in a bin, you drop it, not a lot of fuss to it. Easy to maintain. All very labor-efficient.”

Is it a challenge to be the lowest-priced operator while maintaining an upscale presentation? Adams doesn't think so. “Not really, because, when you think about it, it's all just in your standards that you set, so we've tried to pick better fixtures than you'd typically find in a discount store, but if you give it the right allocation, and you think things through [as to] how you display the high-volume items and the space allocation that you give, you can still have the right labor costs and great standards,” he explains. “There's no excuse not to — you spend a little bit more maybe on your layout and your fixtures to save labor costs.”

What's in a Name?

The produce department also showcases brands from parent Sobeys' three-tiered private label program, says Adams, explaining a bit about each: “The Signal brand, which is an opening price point, best-price product; Compliments is our national-brand equivalent; and Sensations, which is the higher-quality products.”

Added to these are items sold under the eponymous FreshCo label. “We've actually created some of our own labels under the FreshCo brand in the fresh side of the store,” says Adams, to communicate on-site, freshly prepared products such as fresh fruit. However, he adds, the product line is actually prepared centrally by a third-party vendor that “delivers it as often as we need it, to keep it fresh and turning.”

In addition to imparting on-site freshness, the FreshCo. brand performs the equally important role of familiarizing consumers with the banner name. “It's a new brand,” says Adams. “We're competing in a very hotly contested market and trying to launch a new brand, so the more we get our name out there, as long as it's consistent with our strategy of ‘Fresher. Cheaper’…”

FreshCo branded products also show up in the in-store bakery, which flows seamlessly from the produce department. “A little signature here just as we start to enter our bakery is fresh cakes,” notes Adams, indicating a refrigerated display of birthday and special-occasion cakes. “Most discounters would only have these frozen, but some people want to have a fresh cake today.”

Substitutes for Service

A key to cost savings in bakery, as well as the adjacent deli and meat sections, is the lack of service counters. (For more on how FreshCo saves on labor, see the sidebar on page 24). “We have to be the lowest-priced in the market,” says Adams. “That's our strategy. To be the lowest-priced discounter, you can't have service departments. So how do we pull off a fresh image, when we don't have it produced on-site? With local bakers. We wanted to make sure we led with fresh breads.”

Boasting loaves of fresh bread delivered daily by Italian Home Bakery, a well-regarded local vendor, Adams praises its owner “as an expert. He's been in business for 70 years. He can bake better-quality breads than we ever could, if we had a bakery here.” So far, the partnership has been a roaring success. “He's gone across the province with us,” says Adams. “But if he can't reach a remote area, we'll find a local baker to partner with. So far, he doesn't want to give it up.”

Unusually for a bakery section, the store has three doors dedicated to frozen products. “Although we wanted to promote the fresh, there's still some items that you can't do fresh, like your frozen cheesecake and things like that, so we've got both [types of bakery items] covered,” explains Adams, adding that “Sensations has a great lineup in the [frozen] bakery area.”

The section also offers commercial breads on gravity-fed racks and some multicultural lines of ethnic bakery, including Middle Eastern pita, West Indian rusk cakes and European rye bread.

Despite the lack of a service deli, shoppers are bound to be dazzled by the selection offered at the Oakville FreshCo. Notes Adams: “What we do is we extend the variety — a better variety than we would have had under the Price Chopper brand with the service deli — and lower prices and no lines. It's self-serve, so it gives people a chance to try things; they don't have to wait. There are actually over 100 different varieties of cheeses here.”

Taking up the back wall as a shopper emerges from the bakery and deli sections are the meat cases. “We anchor this side of the store with fresh meat,” notes Adams. “That's all prepared centrally — no butchers here on-site — and kind of in the theme of ‘less compromise as a discounter,’ we've created a two-tier program across all of our proteins. So, we'll have a regular-tier program under the FreshCo brand in pork, beef and chicken; then we'll have a premium tier under the Sensations brand, which is the higher quality.” While discount-seeking shoppers are the store's target audience, many still want to “treat themselves once in a while to a higher-quality product,” he says. “So [we] give people a choice.”

One interesting feature is a selection of halal items for observant Moslem customers. “Every FreshCo that we've opened so far has a halal meat section,” observes Adams. “Typically, it's 8 feet, especially in GTA, where there's the need for it, and it's just another signature required to serve the market properly.”

Away from the wall lined with meat cases are “bunkers” of high-volume, high-velocity items on promotion. “These flip over seasonally, of course,” says Adams, noting the holiday-entertaining bargains on offer at the time of PG's visit. One bunker offers products “at an even price point, $5, $7 or $10, and it's all frozen proteins, pastas, dinners, entrees, that kind of thing,” he adds. “Really a popular bunker for us.”

Center of the World

Past the bunkers, the center store proper starts with a variety of products from around the world. “This is our international foods aisle,” says Adams, explaining that the thought behind the section was: “We're leaving the fresh zone, and how could we excite our customers in grocery?”

On entering the aisle, which includes items marked out by signs according to region, he continues, “This is where every FreshCo store is slightly different, depending on the neighborhood, and we wanted it to be the very first thing our customers see once they leave fresh, this selection of international foods.”

An ingenious strategy to lure local shoppers away from ethnic markets involves placing product in packaging that's familiar to such consumers. “We've partnered with a lot of vendors, where we could, to create great brands that are packaged and sold authentically, like they would find in an East Indian small neighborhood grocery store,” says Adams. “That's how they were buying their lentils and dried foods, was no branded product — people like seeing just a clear package. This keeps our packaging costs down as well.” Based on the traffic in the aisle on the day of PG's visit, the plan seems to be working.

The shelves opposite the international foods, though, reinforce FreshCo's discounter cred. “On this side, we didn't want [shoppers] to forget, yeah, we're a great-quality fresh store, but we also have the cheapest groceries in the market,” notes Adams. “So we wanted to hit them with great value deals, save labor, keep our costs down [by] doing things on full pallets, and so you've got the best of both worlds as soon as you hit your grocery shop.”

Green-up Time

Most FreshCo stores are renovations — the first ground-up location opened in mid-October 2010 — but that doesn't mean that the Sobeys-owned next-generation discount chain has neglected the sustainability factor.

“It's obvious you can go a lot further in a new build vs. a renovation, but even in all of the renovations, most of the equipment on the fresh side of the store is new to the FreshCo stores, and it's all highly energy-efficient,” notes the banner's GM, Rob Adams. “They have LED lighting, and very energy-efficient overhead lights as well. That was all tested in the lab store, and we came up with an ongoing annual cost as well that would lower our operating costs, so the stores, even though we've renovated them, the cost of operating them has gone down, and that helps keep prices down. A lot of that was just the equipment that we chose to put in.”

Another example of energy efficiency at FreshCo is the placement of doors on cases to maintain temperature. “It's not one huge thing that's going to make the difference; it's the little things that come together to make the difference,” notes Tracy Chisholm, director, communications and corporate affairs for Mississauga-based Sobeys Ontario.

Additionally, FreshCo stores, like other Ontario retailers, take part in a summer program in which store lighting is brought down by about a third to save energy and prevent blackouts.

Success in Bulk

Another novel aspect of center store is the inclusion of an extensive bulk foods section, which has been surprisingly successful, according to Adams. “Most discounters don't do much at all with it, and most of them would have the tub program on the bottom, but we wanted to try something over and above that to get a better selection, great for portion control, and it's obviously great value as well,” he says. “That's been a real hit for us, and it looks great.”

Perhaps the canniest feature of center store, however, is shelf space devoted to products for shoppers with particular health issues. “We added in a gluten-free, sugar-free and organic section, which is not really focused on in a lot of discount stores, but we found that, unfortunately, there's a lot of people that need that, people with celiac disease, diabetes, that type of thing,” recounts Adams. “So we put in a section, and I think it's a loyalty builder for us. We try to keep [the products] all together. It's signed a little bit differently, so it would show up, and it's all in this section here.”

On the future of the FreshCo banner, which debuted in May 2010 with eight Toronto-area stores and has since expanded to 39 locations across southern Ontario, Adams says: “We're actively out there, based on the success we've had so far. We've got a few [locations] lined up for our fiscal 12.”

What's driven FreshCo's success so far, Adams believes, is the new direction in which the chain has taken the tried-and-true discount format. “Discount's been done — it's very successful and a big part of Ontario — but it's been done the same way for 25-30 years, and we wanted to lift it” to offer a better shopping experience with less compromise and a better assortment, while staying true to a price-impact formula. To Sobey's credit, Adams notes, “We've figured out a way to do that.”