Sobeys Shell Buy Sparks Strategy Speculation

Purchase seen as attempt to increase overall share in competitive Quebec market

HALIFAX, N.S. -- Grocer Sobeys surprised many earlier this month when it announced it had acquired 225 gas stations in Quebec and the Maritimes from Shell Canada Ltd., said the Chronicle Herald. There are some who don't see how Sobeys can make it work, but management at Nova Scotia's venerable grocery distributor, which prides itself on being "food focused," obviously sees an opportunity to build its business.

Since most of the stations operations are located in Quebec, where Sobeys has been building its presence under both the Sobeys and IGA brands, the move into gasoline retailing is an obvious attempt to increase overall market share in the competitive Quebec market, the newspaper said

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While the all-cash deal seemed to be out of character, Canada's No. 2 grocery network has been experimenting with 43 fuel outlets in the Maritimes for the past few years, added the report.

And, with rising fuel prices, other retailers have been reporting good returns from their gasoline operations.

Sobeys also has experience operating a promotion with Irving, which offered a gasoline discount voucher based on the amount of groceries purchased.

The fact that both Sobeys and Shell already carry the Air Miles loyalty program also helped to make the transaction even more attractive to the Stellarton, N.S.-based grocery chain.

The price tag attached to the stations hasn't been disclosed, but Sobeys was believed to be up against Alberta's Parkland Fuel Corp., which has been aggressively acquiring fuel businesses across the country. Parkland is best known in Nova Scotia as the owner of the Bluewave Energy brand.

On the grocery side, it was thought to have been facing competition from the likes of Alimentation Couche-Tard, the convenience store giant, which operates the Circle K stores attached to many Irving outlets in Atlantic Canada.

Considering the competition, some may be speculating that Sobeys paid top dollar for the stations. They are expected to add more than one billion liters of gasoline sales annually to Sobeys' total volume, though some of the less profitable outlets will be closed.

Dealing with Sobeys seems to make sense for Shell, which, aside from getting paid in cash, gets to continue supplying fuel to Shell-branded stations in Quebec, the report said. And since Sobeys has a good reputation in the grocery business, there is also potential to grow gasoline sales as more people come to shop at the attached c-stores.

It's not known yet whether those stores will carry one of the Sobeys banners.

The deal still needs to receive regulatory approval and isn't expected to close until March, so analysts and interested observers probably won't be get a glimpse at what the deal will mean to Empire's financials until the company's fiscal fourth quarter, the paper added.