27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 1/11

loblaws sobeys

Home Blog - news Contact Palladium Gold investing Top 20 Banks Oil supply and DemandGreece Middle Class loblaws sobeys Bombardier Research In Motion Alberta Oil Discussionlargest-banks-in-europe-canada-australia sites spot prices gold supply and demand Royal Gold silver

production Oil Companies BlackBerry Cenovus Energy Rio Tinto metal prices averaged Gold in 2013Oil By Company Investments Keystone Pipeline Iran Oil Exports Drilling Permits European Utility

Companies Gold Reserves by country silver vs gold International Canadian Companies Pipeline Projects

Between 2008 and 2011, 12-month (calendar year) sales at Empire-Sobeys limited rose

11.50% to $16.2416b 53 weeks ended 2Q12 (Nov 5) up from $15.6407b the year prior. That

compares to only 1.5% for Loblaw Companies and 1.6% for Metro Inc. Since 2006 (the first full year

that A&P Canada was part of Metro) fiscal year Metro sales ($11.431b) have increased by only4.3% compared to 24.7% for Sobey's (minor boost for Sobeys came in 2007 when it acquired BC chainThrifty Foods for $260M; for the past six years Sobeys has led the industry in same-store salesgrowth). In 2013 Metro Inc net earnings jumped 47.5% to $721.6m however $266.4m was gain fromdisposal of 11% stake in Couche Tard.

Sobeys latest quarterly dividend for 1q2014 is 26 cents, same as 3 months earlier but up from 24c in

3q2013 (24c was unchanged from 2q13 but up from 22.5 cents a share in 3rd, 4th qts of 2012). This

is higher than Loblaws (3Q13 stable at 24c but up from 1Q13 22c; dividend had been stuck at 21c for

over 6 consecutive sessions until 4Q12 when it was increased to 22c) and Metro (25c Nov.27 same as

Jul 2013/Dec 2012 qtr but up vs previous year 21.5c q2q). Fiscal 2013, Empire annual revenue up

8.4% to $17.61b ($17.403b from Sobeys +8.4%, Sobeys same-store sales +1.3%). Fiscal 2012,

Empire revenue up 1.8% to $16.25b ($16.06b from Sobeys, same-store sales +1.4%). Fiscal 2011,

revenue at Empire up 3% compared to only 1.3% at Loblaws. Most of the increase in Sobeys revenueis coming from 1) Larger new stores (in terms of square footage, closing the gap between it andSuperstore 2) Modest inflation 3) Product/services innovation. Latest fiscal year % revenue fromother operations - Sobeys 1.2%, Loblaws 2.0%. Interim food retailing sales surpass $8b in 1h2012

$8.09B (+3.3%), investment revenue to $106.4m (+1.4%). Funded debt: 2014: $948.3m (-0.3%) 2013:

$969.5m (-14.3%), 2012: $1130.8m (-1.9%), 2011: $1152.4m (-4.3%), 2010: $1204.5m (down). Longterm debt: 2014: $870.3m 2013: $915.9m (+3.0%), 2012: $889.1m (-18.5%), 2011: $1090.3m (+32.7%)

Sobeys ends fiscal 2013 on high note, ups quarterly dividend to 26c higher than Metro 25c, Loblaws 22c !

quarterly same-store sales % change food retailing

Fiscal Period loblaw sobeys metro revenue % chg earnings % chg

1 2 3 4 1 2 3 4 1 2 3 4 Lob Sob Met Lob Sob Met

2013 2.8 1.1 0.1 1.8 1.3 1.2 0.6 1.5 flat 0.9 1.8 8.4 0.4 11.8 1.5

2012 0.7 0.2 0.2 flat 1.7 1.9 1.2 0.7 1.7 1.0 1.0 1.1 0.84 1.9 4.5 19.6 2.3 22.7

2011 0.1 0.4 1.3 2.5 0.3 flat 0.4 1.0 flat 0.2 0.5 3.2 1.28 3.4 0.8 13.9 8.8 0.2

2010 0.3 0.3 0.4 1.6 4.0 2.7 0.3 0.5 flat 0.7 0.6 0.5 0.6 3.2 1.3 3.8 3.2 10.6

CanadaQuarterly

Consumer PriceIndex for FoodPurchased At

Stores

Loblaw PriceInflation

July 15, 2013 - Loblaw Cos acquires Shoppers

Drug Mart for $6.7b cash/debt and $5.7b equityissue (gives Shoppers shareholders 29% ofcombined company). 1363 locations gives Loblaws

sections: quarterly reports

Sobeys Loblaws

major food retailers: assets & longterm debt

effective income tax rates using most

recent quarter as of November

2013: Loblaws 26.7% (vs 27.2%), Sobeys

24.6% (vs 27.4%), Metro 25.7% (vs 24.7%).

Same store sales growth last quarter

2012 calendar year: Loblaws 0.0%,

Metro +1.5%, Sobeys +0.7%.

last 2 quarters as of November 2013

(Sobeys: -0.1%/+0.6% Loblaw +0.4%/+1.1%

Metro -1.8%/-0.9%)

Sobeys avg # of shares traded was

highest in 2010 68.4m vs 67.9m fiscal

2013; 68.2m 2011, 65.8m 2009.

corporate locations Nov 2013: Loblaw

Cos 570 (-9; 2012: 580, 2011: 584),

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 2/11

Stores

1 2 3 4 fy 1 2 3 4

2013 1.4 1.5 0.9 flat flat flat

2012 3.7 2.5 1.8 1.5 mod mod mod flat

2011 2.5 4.0 4.9 5.2 mod mod mod mod

2010 0.7 0.3 1.3 1.5 flat flat flat flat

combined company). 1363 locations gives Loblaws2348 stores total including 1792 pharmacies (500in-store). Deal boosts Loblaw profit margins butnot grocery market share (only 10% of Shoppersrevenue is from food). Loblaws gains nationalshare in pharmacy prescriptions: 7% -> 25%.July 5 - Choice Properties (415 prop) more

June 12, 2013 - Sobeys announces a C$5.8 billion deal has been made with Safeway for its 223 unit strong

Canadian division (213 grocery stores + 10 liquor store). Western Canada is home to all but 6 of the locations(6 in Ontario). The deal is significant for Sobeys - becomes market leader in fast growing Alberta (locations ->234; median income +21% vs national), and supermarkets in British Columbia beyond just Thrifty Foods (3Sobeys -> 78 Sobeys + Safeway). Also included in the deal are 199 in store pharmacies, 10 liquor stores, 12manufacturing plants, and 62 gas stations. The deal will be paid for in cash with funds coming from Empireequity issue and asset sales. Excluded from the deal is $300m of short term debt and 189 gas stations. 49 ofthe locations (plants + gas stations + liquor + grocery) are in Saskatchewan (16) and Manitoba (33). Safewayhad revenues of $6.7b in the year ending March 23, 2013 up from $5.3 billion in 2011. Excluding all fuelstations Sobeys + Safeway = 1300 to 1523 (May 2013 stores down from 1315 -> 1300). pro forma annual

revenue increases from $17b to $24b. more on the Safeway acquisition and my reaction June 27 -Empire Co sells theatre business in two transactions for $255m. Cineplex Odeon is paying $200m for 24theatres in Atlantic Canada (170 screens) while Landmark Cinemas is taking the other 20 theatres in the rest ofCanada for $55m. This deal was obviously made to finance the Safeway deal; Sobeys previously stated that$1b of the $5.8b needed will come from asset sales. October 22 update - Competition Bureau forcesSobeys to sell 23 supermarkets as a condition of the deal. Only 13 of the grocery stores are part of the 213acquired, the other 10 are Sobeys (7), IGA (1), PC (1), Thrify (1).

No Frills has been in business since 1978, its 152 Ontario stores have annual sales of about $3.4 billion butLoblaw Cos doesn't get to reap all the benefits given that the stores are franchised (not corporately run likeSuperstore). Only about 12% of the grocer market in the maritimes is in the discount market, that's in starkcontrast to Ontario (40-45%) and Quebec (33%). (Grocery Trade Review June 2010 edition)

Keep in mind fiscal year end dates: Loblaws Dec 29, Sobeys May 5, Metro Sept 29 (2012/2013)

Sobeys Loblaws Metro Inc

retail other retail other retail

2013 fiscal

sales 17402.7 210.0 11402.8

oper income 515.3 69.5 327

oper margin 2.96% 33.1% 2.87%

profit 339.9 44.9 721.6

same store % 1.3%

locations 1568 1058 635

average size 19058 48960 30930

2012 fiscal

sales 16044.6 204.5 30960 644 11674.9

oper income 475.8 58.5 1101 95 393.6

oper margin 2.97% 28.6% 3.6% 14.8% 3.4%

profit 304.1 35.3 650 incl 489.3

same store % 1.4% (0.2)% 1.2%

locations 1575 1053 641

average size 18625 48908 30655

2011 fiscal

sales 15756.3 200.5 30703 547 11396.4

oper income 473.4 52.3 1312 72 587

oper margin 3.0% 26.1% 4.3% 13.2% 5.1%

profit 297.3 103.3 769 incl 392.7

same store % 1.3% 0.9% 0.04%

locations 1337 1046 564

average size 21441 48918 33925

2010 fiscal

sales 15243 273.2 30315 521 11342.9

oper inc 425.3 54.4 1239 108 585.8

oper margin 2.79% 19.9% 4.09% 20.7% 5.2%

profit 259.0 42.9 681 391.8

same store % 1.9% (0.6)% (0.5)%

avg size 21048 49298 34806

locations 1334 1027 566

-> store size calculated using info provided in annual reports. Loblaws and Sobeys provided direct info; Metrowas calculated using only Metro, Food Basics, Super C, Richelieu full service supermarkets, Sobeys data fromEmpire annual information forms 2012, 2011 editions. Second chart excludes 24 Fast Fuel, 236 Shell stations.Metro Inc operating income taken as ebit (ebitda + depreciation and ammortization).

sobeys food retailing capex: 2013- $508.1m 2012- $579.9m 2011- $520.8m 2010- $341.4m

Cos 570 (-9; 2012: 580, 2011: 584),

Sobeys 746 (2012: 736, 2011: 629).

franchised locations Nov 2013: Loblaw

Cos 488 (+11; 2012: 473), Sobeys 822

(2012: 839, 2011: 708).

Metro Inc total locations September

2013 : supermarkets 635 (-6 : Metro 358

[-12], Super C 85, Food Basics 116,

Richelieu 76); grocery 277 (ami 81, extra

196); convenience 415.

Market Share: using most recent food

retailing data available for Canada as a

guide and Loblaw claims that 14m or 40%

of Canadians shop there each week, we

can estimate Loblaws share at 32% ($28-

29b in food sales out of $87b in Canada),

as of 2013 Sobeys is at 19% (58% as

much food revenue as Loblaws ~$15b vs

~$28b), and Metro is at 15% ($12b).

Shoppers Drug Mart 1h2013 results:same store +2.2%, pharmacy +3.2%$2.415b, else +3.9% $2.609b, prescr+7.1%. 2012 full year same-store salesgrowth 2.2% versus -0.2% for LoblawCos.

3 months ended November 2011:grocery prices declined 1% atSobeys despite raw material costsgoing up, a consequence ofintensified competition.

Loblaws goal for its apparel unit, JoeFresh Style is $1 billion in annual sales.

Loblaws is expected to spend $110m in2012 just on improving informationtechnology and product promotions. In2012 a partnership was formed with JCPenny - Loblaws clothing line Joe Freshnow sold at 700 JC Pennylocations throughout the United States.

Brands : Metro - Selection,Irresistables; Sobeys: Compliments(previously known as OurCompliments); Loblaws: President'sChoice, Noname

As of Feb 3, 2013 EmpireTheaters operates 52 theatersconsisting of 434 screens which isdown from 53 and 438 Nov 2012. Sobeys was in the cinemabusiness from 1984 until 2013.

Divestments June 27, 2013 -

Theatres sold for $255m -$200m from Cineplex, $55m fromLandmark. money is used tofinance Safeway takeover. Atotal of 26 theaters/218 screenswere transferred to Cineplex(24/170 in Atlantic Canada),another 20/179 screens went toLandmark Cinemas (WesternCanada).

November 7, 2012 - Petroleumand natural gas properties sold for$17.1m

Empire other investments August2013 Crombie $527.1m (42.7%),

Genstar 197.5m (40.0% May), cdcp$9.6m (+2m), US/Can real estatepartnerships $209.8m (+51.5%)

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 3/11

November 2013 Loblaw Cos Empire Co Metro Inc Costco Couche-Tard

assets 20,460.0 8,981.3 5,061.5 30,283.0 10,672.2

change 18% 31% (1.7)% 12% 3%

LT Debt 6,871.0 870.3 650.0 4998.0 3371.9

change 23% (4)% (33)% 262% 18%

2013: 194 of Metro Inc 564 stores (34%) operate in the

discount food sector compared to 257 for Empire-Sobeys (20%, FreshCo/Foodland) and ~30% for Loblaws.

Sobeys + Safeway = 1538 stores + 322 gas stations (236 shell, 24 fast fuel, 62 safeway gas) . FreshCo was

launched on May 12, 2010 in Toronto. It started out by taking the former locations of Price Choppers stores

(87 in Ontario). To celebrate, Sobeys offered new customers triple A beef.

Sobeys, Empire Company Limited

info is followed by data on

Loblaws

Sobeys same store sales growth of+0.6% in the final quarter of 2013 isdown from +1.2%, +1.3%, +1.8% inthe previous three quarters (3rd 2nd1st) and +0.7% in 4q ofprevious year. By comparison same-store sales growth at Loblaw Cos eachof the last four quarters (most recentfirst) is +1.1%, +2.8%, -0.2%, -0.2%,+0.2%, -0.7% (2nd, 1st, 4th, 3rd,2nd, 1st).

All three seemed to have theirstrongest quarters in terms of same-store sales in 1q2013: Loblaw +2.8%(Mar'13) vs Sobeys +1.8% (Aug'12),

Metro +1.5% (Dec'13).

Fiscal 2013 Sobeys +1.3% vs +1.4%.

Sobeys 2011 same-store sales growth by quarter +1.2%, +1.9%, +1.7%, +0.7%. Looking at it from acalendar-year perspective, Loblaw Cos 1.3% in its 3q was lower than Sobeys 1.7% in its 1q. Loblaws posted a-0.4% decline the quarter prior to that (2q11). (Sobeys led the industry in same store sales for seven

consecutive years). For the investor out there consider this: Annual Sobeys dividends have grownconsistently year in and year out, per share they were at 40c in 2004, 60c in 2007, 66c in 2008, 70c in 2009,

74c in 2010, 80c in 2011 and 92.1c in 2012 (45.6c 1H, 46.5c 2H), 95.0c in 2013 (45c 1H, 50c 2H).

1Q2014 (ended August 3) : 13 weeks - Empire Co earnings down -39.6% ($107.6m -> $65.0m) to only

1.41% of revenue (+2.2% -> $4,609.4m) though when adjusted to exclude one time items, earnings not as

bad (-12.6% -> $89.7m) ; eps from discontinued operations dragged down bottom line (-26c per share vs -1c

previous period). income tax rate down: 27.4-> 24.6% thanks to timing of tax benefits.

Funded debt: Sobeys -11.3m but investments +8.9m. $10.1m pre tax in transaction costs associated with

the acquisition to Safeway factored into operating income. ebitda (-14.8% -> $260.7m).

the good - Sobeys free cash flo

w to $49.7m, funded debt to capital ratio now only

partnerships $209.8m (+51.5%)

May-May 2013 Crombie +$122m+23.4%, investment in associates+$94.2m +30.0%. In 1q2014 Crombie

interest gave Sobeys $6.7m oper. inc.+20% vs 1q2013.

1339 locations (2012) but still roomto grow - Sobeys added only 2 storesin Alberta in 2011 (fastest growingprovince - update Empire takeover ofSafeway vaults it to the top in Alberta,still though, Sobeys should be pushingfor more organic growth), has yet tointroduce FreshCo to the maritimeshome to 55% of corporate stores butonly 5% of those franchised; PerhapsSobeys is concerned about the drop infood prices that would cause; only 12%

of the maritime grocer market is indiscount foods. Organic growth in BCbegan a few years ago (3 Sobeysstandalone stores + 2 IGA) but hasn'ttaken off. Same-store sales growthweak in 2Q2012 if extra shopping weekis excluded, in my opinion it needsto build up its more expensiveorganic, private-label products(took time for Loblaws but paid offsince 2008 when gross profit jumped). Private label products will do wellanyway given that.....

On September 23, 2011 TargetCanada announced that it hadreached an agreement with Sobeysin which Sobeys will become theprimary supplier of grocery items. The deal is big for Sobeys becausefor the first time it will be able tosell its own private label itemsoutside of franchised/corporatelocations Sobeys, FreschCo, IGA,etc.

A similar agreement made in the USbetween Target and SuperValu Incsignificantly boosted SuperValu'srevenue and market access(operates over 2,500 locations butthat number nearly doubles whenTarget and other stores it serves asprimary distributor are included).125-135 Target locations are slatedto open begining in 2013. Since thenews broke about a month agoSobey's stock is up 6.2%.

Sobeys IGA locations more

Environmentally Friendly = Excess

Carbon Credits

On November 15, 2011 announcedthat it had reached a deal withthe National Bank of Canadainvolving the sale of 15,000tonnes worth of CO2 greenhousegas emission gas credits(annually) to the bank, allowingthe bank to be a neutral emitter. At present Sobeys has an excessof credits in Quebec due toimprovements at IGA locationswhere it sucessfully replacedharmful refrigeration gasses.

December 15, 2011: Sobeysannounces the purchase of 250Shell gas stations in AtlanticCanada (50) & Quebec (200);However, when the deal closed on

March 15th the number of stationswas lowered to 236 47 of which are

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 4/11

w to $49.7m, funded debt to capital ratio now only

19.9% vs 21.5%. operating income $175.0->

$133.9m: Sobeys -18.5% to $127.0m,

investments/other -63.9% to $6.9m (previous period

incl dilution gains of $11.4m, Genstar also down

$4.6-> $3.1m). net earnings from continuing

operations: $108.1-> $82.6m or $1.59->$1.21

per share : Safeway transaction costs -$7.1m.

Sobeys accounted for $16.5m/$25.5m of the difference (divestment of Empire Theaters partly responsible),

investments (-73%-> $3.4m). Sobeys oper inc $79.2m (-17.2%). consolidated net earnings: $65.0m (food

$79.2 / invest -$14.2m vs +$11.9m prev period) or 96c eps basic (vs $1.58). remeasurement of assets +

transaction costs totalled $18.3m net of tax - that widened net loss from discontinued operations to $17.6m

up from $0.5m prev period. consol earnings per share -39.9% ($1.58->$0.95). same-store sales weak at

-0.1% but not surprising (ss-sales also lower at Metro Inc -0.9%). Sobeys square footage +2.4% to 29.7

million sq feet. another factor to consider when looking at fall in bottom line is oper.inc from outside

retail,realestate -> -$2.9m vs +$8.9m last yr.

Sobeys - the food retailing segment reported sales of $4,5949m (+2.2%) or $4,6060m when reclassification

of lease revenue is included (+2.2%). food retailing profit: $79.2m (vs $95.7m -17.2%). Investments,other

contributed $3.4m to sales (+$1.4m); consolidated revenue 4.6094b (+$100.3m). sales from discontinued

operations bulk of which is Empire Theatres: +13.2% ($48.6-> $55.0m). total assets by segment Aug-

Aug: food retailing $6455.1m (vs $6215.0m), other $2526.2m (vs $623.9m). Interest in Genstar, Crombie

now at 42.7%, 40.7% respectively.

4Q2013 - Fiscal 2013 (ended May 4) quarterly : Empire Company paid out $16.3m in dividends (+$1.0m)

or 26c a share (+8.3% versus every other quarter in current fiscal period). quarterly revenue $4308.9m

(+235.1m +5.8%) of which Sobeys contributed $4,259.2m (+$233.3m +5.8%). Excluding new revenue from

236 gas stations (+$269.7m in qtr) Sobeys revenue increased $94.9m +2.4%. qtrly same-store sales +0.6%

not bad considering at Metro it was 0.0% in qtr ended March 16. Net Earnings up +16.6% $92.1-> $107.4m

or per share +17.0% $1.35-> $1.58 ; adjusted +10% 89.6->$98.6m, +9.8% $1.32-> $1.45/sh. adj

oper.income $155.1m (up $18.7m or 13.7%). net earnings breakdown : Sobeys $89.1m (+$7.9m or 9.7%),

Investments $18.3m (+$7.4m or 67.9%), adjusted : Sobeys $82.3m (+$3.1m or 3.9%), Investments $16.3m

(+$5.9m or 56.7%). ebitda - $247.0m +22.8%

fiscal year Sobeys sales +8.4% $16,055.5 -> $17,402.7m with $1,031.6m of the difference coming from new

gas stations (Shell gas stations are considered part of food retailing division Sobeys); excluding new gas

revenue Sobeys increased $445.8m +2.8%. empire total revenue 17,612.7m +8.4%. same-store sales up

+1.3% on the year. Net Earnings up +13.4% $339.4 -> $384.8m, adjusted +13.8% $322.7 -> $367.3m, per

share +13.2% $4.99 to $5.65. adjusted +13.7% $4.74 to $5.39. adjusted operating income $562.4m (up

$48.5m or 9.4%).

operating income breakdown : Sobeys $515.3m (+$39.5m or 8.3%), Investments $69.5m (+$11.0m or

18.8%). adjusted: Sobeys $504.7m ($39.1m or 8.4%), Investments $57.7m (+19.5% or $9.4m).

net earnings breakdown : Sobeys $339.9m (+$35.8m or 11.8%), Investments $44.9m (+$9.6m or 27.2%),

adjusted: Sobeys $331.0m (+$36.4m or 12.4%), Investments $36.3m (+$8.2m or 29.2%).

Accounting for difference between profit and adj profit : +4.0m trans costs related to Safeway, +$1.5m in

realignment costs (+$6.7m for year), -$13.8m on gain from disposal of assets (-$22.9m on the year). full

year ebitda - $944.1m +67.5%. Funded debt to capital ratio 20.6% (25.0% last year)

42.8% interest in Crombie reit worth $622.7m (up $102m).

3Q2013 (ended February 3) Sobeys adjearnings +8% to $71.7m. Dividendsteady at 24c, debt to capital ratio24.6% -> 21.6%. Sobeys same-storesales up +1.2%. gross margin for the 39week period down significantly (24.08%-> 23.03%) on account of lower marginfuel sales (excl that, gross marginsteady at 24.25%). Quarterly revenueat Sobeys up by $348m -> $4.2848billion; all but $97.1m of the increase inSobeys revenue is attributable to theacquisition of 236 shell gas stationslate 2012.

Excluding that, revenue +2.5% ->$4.0274b, the strong food sales isattributable to price inflation and largernew stores though competition playeda negative role (consumers less likely tobuy pricier items). quarterly net income down -6% $75.2m, due to $(4.8)m accounting charge,

was lowered to 236 47 of which arein Atlantic Canada (the rest inQuebec). The acquisition costSobeys $215 million. Positiveeffects of the Shell deal: 1) Greatlyexpands cash flow for Empire's nonfood business segment. 2) The gasstations will give Sobey'sconvenience store business moreleverage. 3) Gas stations enjoyhigh gross profit margins,something that Sobeys hasn't beenable to improve (stuck at around24%, a low ebitda margin of 2.7%was cited as being mainreason it sold Serca fooddistribution business back in 2001for $440M). Shell is supplied withrefined oil by Imperial Oil which iscontrolled by the world's biggest oilcompany Exxon Mobil (65%ownership). The acquisitionincreases Empire-Sobey's annualfuel volumes by 1 billion litres.

Locations Spread

In 2012 Empire Cinemastransfers $7.6m worth ofprojectors to the Canadian DigitalCinema Partnership (cdcp) inexchange for a 21.8% interest in

cdcp. Voting shares in cdpc:Empire 50%, Cineplex 50%

In the discount supermarketsector Sobeys' FreschCocompetes directly with Loblaw'sNo Frills in Ontario (thoughFreshCo hasn't yet beenintroduced to key areas such asHalifax), in Quebec discountthere's also Metro's Food Basics

and Super C. Superstore (Real

Canadian or Atlantic depending on

the region, the superstore brand

represents 1/5th of Loblaw's

corporate run

locations), Provigo (taken over in

1998, presently Provigo is the

largest Loblaw brand by locations,

twice as many as Superstore), Maxi,

Great Food and Zehr's take on

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 5/11

Tweet 15

1

buy pricier items). quarterly net income down -6% $75.2m, due to $(4.8)m accounting charge,3q12 included +$9.3m from asset sales; crombie+other investments contributed $6.4m of the$75.2m profit. Earnings adjusted $1.17 per share ($79.6m).Total company revenue hit $4.34b during the qtr (+9.0%), $13.3038b in the 39 week period(+9.3%).42.9% interest in crombie reit worth $580 million (+10.0% since start of fiscal year in May). more

2Q2013 (ended November 2, 2013) Sobeys same-store sales increased +1.3% (+1.5% for thehalf), non-fuel gross margin increased slightly. Sales at Sobeys (+9.1% to $4.3454b from$3.9838b) represents 98.7% of Empire Company revenue (+9.1 to $4.4041b). Just over $257mof the $355.95m change in Sobeys revenue ($515.1m / $750.8m in half) is attributable to 236Shell gas stations acquired late last year (gas, convenience business is part of Sobeys).Funded debt to capital ratio is 21.5% down from 25.0% due to repayment of $200m nonrevolving credit facility. Net income for the entire company is up +19.46% to $93.3m(+15.2m) or $1.37 per share from $1.15 (adjusted earnings up +14.4% to $1.26 a share),$85.0m of which came from Sobeys (+24.3%). Empire Co profit increased due to higheroperating income ($125.8m -> $140.9m) and lower finance costs ($15.0m -> $12.1m). Operating income is $175.1m (+17.60%). Sobeys was the source of 90.6% of the change inoperating income ($127.7m +16.3%). Book value per common share is now $52.31 up from$49.98 (May 2012), $48.02 (Nov 2011). Investments added $8.3m in earnings (-1.4%) onrevenues of $61.8m (+11.8%).2013 at the half: Same-store sales up +1.5%, food retailing earnings up +21.3% to $182m(most of the increase from gas stations). Total company earnings up +20.86% to $202.2m(+18.2% adjusted to $2.78/sh) on revenue of $8,961.8m (+$771.3m 9.4%). Sales at sobeys$8,849.4m (+$765.2m or 9.5%). Empire's investment's added $20.2m in earnings on revenuesof $112.4m (+5.7%). Operating income $316.0m (+41.3m) $284.0m of which is from Sobeys(+15.8%). Graph below was made in November so it doesn't include Nov quarter which was released in December

1Q2013 (ended August 4, 2013) Sobeyssame-store sales increased +1.8% withgross margin steady at 23.15%.Revenue at both Sobeys ($4.51b) andEmpire Company (+9.7% to $4.56b)broke into record territory. Just over$250m of the $403.5m increase in totalcompany sales came from the newlyacquired 236 Shell gas stations (gas,convenience business is part ofSobeys). Funded debt to capital ratio is21.5% down from 25.5%. Net incomefor the entire company is up +22.08%to $108.9m or $1.60 per share from$1.32 (adjusted earnings up +21.6% to$1.52 a share). Operating income is$175.1m (+17.60%).

4Q2012 (ended May 5, 2012) Sobeyssame-store sales increased +0.7% qoq.Sales at Sobeys food business was$4.0232b down -1.94% from $4.1026blast year due to an extra week last year(14 vs 13 this year). Quarterly profitfrom Sobeys food business was $79.1m(+4.8%) or $1.17/share (+5.4%)representing 88.4% of Empire's totalprofit ($89.5m +10.1%). Salesattributable to investments/other wasup +7.2% to $50.6m. Ebitda fromSobeys up +5.27% to $203.7m (from$193.5m). Ebitda margin 4Q is 5.5% upfrom 5.06%. funded debt/capital 25.0%.For the year, Sobeys sales up +1.26%to 16.0446b (out of Empire's totalrevenue of $16.2491b), profit was up by$6.8m to $304.1m (out of Empire's$339.4m down -$61.2m but $76m ofthat is due to an artificial gain from the sale of 27.5% of Wajax Income Fund). Sobeysaccounted for 91.5% of ebitda ($801.8m/$876.6m) down from 91.96% in fiscal 2011

Great Food and Zehr's take onSobeys, IGA and Foodland head tohead in regular priced foodretailing in central and easternCanada. In Ontario and Quebecthere's also Metro's Food Basicsand Super C.

Sales at Sobeys first reached $1billion in 1987. In 1999 (2000 fiscalyear) Empire-Sobeys salessurpassed $10 billion for the firsttime, reflecting the first full year theOshawa Group was part of it.

About 30% (<400) of all Loblawlocations are discount 'no-frills'grocery stores (removal of non-essential items tokeep prices low) no-frills/valuemart/freshmart/wholesaleclub, that compares to less than 20%(257/1271) for Sobeys (ThriftyFoods, Freshco) and 34% for Metro(end of 2011: 79 Super C, 115 FoodBasics, Metro total 564). On June 29, 2012 Marc Poulin willreplace Bill McEwan(health/retirement) as CEO ofSobeys. Bill was instramental ingetting Sobeys the deals it has withTarget and Shell. He is aninspiration to anyone wanting tomove their way up in any company;Bill started out bagging groceriesand ended up president ! Graph Below: Empire Companyinfo by business segment2009, 2010, 2011 fiscal years

archived images below

Post to Facebook666666666Post to Twitter1515

Like 6

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 6/11

accounted for 91.5% of ebitda ($801.8m/$876.6m) down from 91.96% in fiscal 2011($793.6m/$863.0m). Sobey's operating income was $475.8m (out of Empire's $534.3m) which issteady with last year's $473.4m (out of Empire's $525.7m). In the last quarterEmpire Company handed out a 24 cent dividend up from 22.5 cents in 4Q2011 (Sobey'squarterly dividend increases are relatively new, was stuck at 20c for most quarters prior to Jan2011).That pushes Empire's dividend past Metro's 21.2 c dividend. Same-store sales growth for 2012:Metro Inc is now threatening to pull ahead of Sobeys for the year after going +1.7%, +1.0%,+1.0% in the first three quarters of its fiscal year (which ends in September). Sobeys went+1.9%, +1.2%, +0.7% in the last three quarters (2nd, 3rd, 4th). Boosting Metro's performanceis its 55% interest in Adonis and Phoenicia middle eastern food markets (54.1% of Metro'srevenue change over the 10-months ended June 2012($173.3m / $320.2m) came from Adonis and Phoenicia). I wrote about Metro's latest quarter3Q2012 here.

3Q2012 (ended Feb 4, 2012):Sobeys same-store sales increased 1.2% qoq. However net income for the entire company wasdown 9.7% to $88.9m or $1.17 per share (-10.7%); Keep in mind though that last year's 3qtr

earnings included $28.5m in pre tax expense reduction associated with post retirement benefits. Adjusted net earnings were down only -5.3% to $68.4m ($1.01 per share). Dividend per share =22.5 cents. Empire's revenue for the quarter was up 2.8% to $3.98b, $3.94b of which came from thefood retailing division (+2.9%, Sobeys, IGA, etc). Sales attributable to investments/other was down-2.9% to $47.6m. Ebitda from Sobeys declined by -17.8% in the quarter even though Sobeys gained$11.4m from the disposal of assets. Positive signs: 3rd quarter gross profitmargin (profit/sales) increased to 24.1% from 23.9%. For the nine month period Empire's Food Retailing sales (+3.2% to $12.0213 billion) and profit(+0.7% to $222.9m, profit adjusted +7.5% $213.7m) were up, though ebitda was lower (-0.3% to$598.1m). Sobey's operating income -12.98% to $110.6m but most of that drop is from items notconsidered part of usual business operations (underlying operating income down only -2.9% to$101.5m). Food retailing net income (net of minority interest) down -11.95% to $72.9m. Consolidated Empire profit for the nine months for all business units is $247.3m (-22.3%) butremember that 107.6% of the drop is because the last period includes a gain from the divestment ofWajax. Investments/other 9M2012; net income (net of minority interest) up +6.6% to $17.7 million; including minority interest investments/other profited only $24.4 million compared to $$96.8 million inthe third quarter last year ($76.2 of the decline is because last year's nine month period includes thesale of the 27.5% interest in Wajax). Empire-Sobey's now owns 44.6% of Crombie REIT downfrom, 46.5% on January 29, 2011. Interest in Genstar Development Partnership now at 40.7%.

2Q2012 (ended Nov 5, 2011): Sobeys same-store sales increased 1.9% qoq. However all was not rosy in

the 2nd qtr; net income was down 45.3% to $78.1M or $1.15/share remember though that $76.1M of the lost

earnings are directly related to the sale of Sobey's interest in Wajax Income Fund. Funded debt to capital ratio was

lowered to 25.2% from 28.0% the year before. Only 98c/share of Empire's EPS in 2Q11 came from business outside

of Wajax so the profit drop isn't too concerning.

For the 1st half of fiscal 2012 operating income was up 4.37% to $274.7M, ebitda up 4.40% to $444.5M while

depreciation was +$5M for the half/ +2M for the quarter. Versus May 2011, long term debt is down a healthy 21.1%

to $860.2M but debt due within the next year skyrocketed up to $238.2M from $49.4M in May 2011, $57.1M in

2Q11. Total assets are now at $6,536.8M up a full 1.0% vs May (+$61.6M), +4.3% vs 2Q2011 (+$271M).

Dividends paid out at a rate of 22.5c/share totalled $15.3M +12.5% vs last year ($13.6M or 20c/share). In the 1st

half of 2012 food retailing accounted for 89.4% of total net earnings compared to 60.4% in 1hlf2011. The difference is due to gains from the sale of Wajax in 2011 which contributed an additional$76.2m in the 2nd quarter of 2011. Full results for Sobeys at 2Q2012 pdf report. *note: graph to theright will be updated everytime Loblaws releases its data. Empire-Sobeys long term debt: $1.0984billion as of Nov 5, 2011 (down from $1.168b Oct 2010) $997.8m of which comes from the grocerybusiness (up from $974.2m). Although common shares have been higher year in, year out,preferred series 2 shares have not ($1.13 in fiscal 2008, $0.78 in 2009, $0.44 in 2010, $0.52 in2011). Loblaws 3q2013 (ended October 5, 2013) 16 weekquarter: consolidated same-store sales growth at+0.4% (vs -0.2%) : retail same store sales at +0.1%(vs -0.3%). Loblaw Companies profited $154m(-29.0%, per share -28.6% to 55c) on consolrevenues of $10,009m (+1.9%, was +1.03% lastyear). Adjusted eps better at 78c (-3.7%) still missesanalyst estimate of 81c (stock down 8% on theday). strong sales growth in gas bar and apparel;modest in food, declines in pharmacy, generalmerchandise. Gross profit margin for retail businessdown from 2q2013 (21.5% vs 22.3%), loblaw cosputs the blame squarely on increased competitionfrom Walmart and new comer Target. Despite retailsales up +1.5% ($9627->$9772m) gross profitremained at $2,104m meaning cost of goods rosefaster than revenue. operating income declined by -$31m ($29m adj) due to lower fx gains, higher

depr/ammort offset by labor efficiencies. Adjusted operating margin 3.7% (vs 4.0%), ebitda 6.2%(vs 6.5%). Internal food price inflation flat .. national CPI significantly lower at 0.9% (vs 1.8%). Metro Inc released its 4q2013 results the same day (same store sales down -1.8%, adj earnings

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 7/11

Metro Inc released its 4q2013 results the same day (same store sales down -1.8%, adj earningsstable at $113.0m but unajusted down 42.4% to $83.6m due to $21m gain from final disposal of11% stake in Couche Tard/1 less week this period.

Loblaws retail segment: revenue $9772m (+1.5% vs $9627m), gross profit $2104m (same), oper inc$342m (-8.3% vs $373m), ebitda margin 6.2% (vs 6.5%). financial services: revenue $222m(+11.0% vs $200m), oper inc $41m (+28.1% vs $32m), ebit $27m (+42.1% vs 19m). revenue higherdue to i) higher credit card receivables (averaged $2297m +11.8% vs $2055m) ii) higher sales frommobile shop. 9 month revenue +14.3% -> $535m. ebit affected by renegotiated vendor contracts(lower costs) and marketing investments (increased costs). quarterly effective tax rate now 26.7% (vs 27.2%), 9-months 26.6% (vs 25.8%). any increase in taxrate during this period is due to decrease in income tax recoveries.9-months: revenue $24,731m (+2.5%) [retail $24,181m +2.2% / fin.serv $535m +14.3%] adj ebitda$1631 +4.8% [ebit retail $1517m +1.9%/ fin.serv 464m +137%].

Loblaws 2q2013 (ended June 16, 2013) 12 week quarter: same-store sales growth at 1.1% (vs0.2%). Loblaw Companies profited $178m (+14.1%, per share +14.5% to 63c) on consol revenues of $7520m(+2.0%, was +1.3% last year). according to Loblaws, sales growth strong in gas bar and apparel; modest infood; flat in pharmacy, negative in general merchandise. Gross profit margin unchanged at 22.3% buoyed bylower transportation costs and less theft. Foreign exchange rate positively impacted margins; depreciation andamortization negatively affected operating margins (4.3% up from 3.9%). Ebitda margin 6.8% (vs 6.4%). Internal food prices inflation flat which is lower than what was reported by the consumer price index (1.5%down from 2.5% last year). retail segment: sales up +1.9% $7236-> $7372m, gross profit +2.0% $1611->$1643m, operating income +6.9% to $294m. oper. margin 4.0% (from 3.8%). financial services: revenue+6.5% -> $148m, oper.inc nearly doubled ($15-> $28m), ebitda up a whopping 350% ($4 -> $18m). creditcard receivables +10.7% -> $2279m with the average yield at 13.5% (up from 12.7%). 2013 half: same-store sales 1.9% vs -0.3% last year. total revenue 14,312 -> $14,722m (+2.9%), oper.inc.529 -> $631m (+19.3%), earnings 278 -> $349m (+25.5%). retail segment: sales +2.6% $14,044->$14,409m, gross profit +2.5% $3140-> 3219m, operating income +14.6% to $500m. gross profit margin fellslightly (22.4% -> 22.3%) but operating margin was up a healthy 4 basis points (3.6% -> 4.0%). financialservices: revenue +16.8% -> $313m, oper.inc doubled to $58m, ebit $8m -> $37m.In the last 12 months (June - June 2013) -- Loblaw opened 23 stores, closed 13 stores -- retail space netchange +0.4m sq ft. A $7 billion reit handling 415 properties was launched on July 5 and given the name'Choice Properties'. The ipo was worth $660 million which included $460 million from individual investorsand $200m from George Weston Limited (owns 46% of Loblaw Cos, Galen Weston Sr owns 60% of GeorgeWeston). Higher effective tax rate this year ! 26%-27% full year 2013 up from 24.9%. capex $1b sameas 2012.

Loblaws 1q2013 (ended March 24, 2013) For the 12 weeks ended March 24, Loblaw Companiesprofited $171m on revenues of $7.202 billion (+3.8%) 86.4% or $229m of the $265m revenuegrowth came from retail sales ($7.037b +3.4%), impressive considering the national food consumerprice index was up only 1.4% this quarter. A collapse of a factory in Bangladesh which housed JoeFresh Style textile workers hit the company's brand reputation but the company remains optimisticabout the situation: Loblaws has compensated families affected by the tragedy and is working toimprove working conditions there.

The financial services segment showed a 375% increase in earnings before taxes. Operatingincome improved markedly due to 1) renegotiated pc telecom vendor contracts 2) higher mobilessales and more banking services revenue (credit card transactions increased both in number andvalue). Loblaws anticipates that the initial public offering of its real estate investment companywill take place in July 2013, the market value of assets affected by the ipo exceeds $7 billion. same-store sales +2.8%. Loblaws Fiscal 2012 (ended December 29, 2012) For the 2012 fiscal period, revenue at Canada'sleading grocer is up +1.13% to $31.604 billion, with net sales of retail items up a marginal +0.8%($30.703b -> $30.960b). The company failed to translate the additional revenue into profit: Grossprofit (-$1m), operating income (-16.1% to $1101m), operating margin (4.3% -> 3.6%) all declined. Though the financial services segment (boosted by the launch of new mobile shop kiosks / highercredit card transaction values) exceeded expectations (revenue +17.7%, operating income +31.1%,

ebit +108.3%) Loblaw Companies stilldidn't improve its bottom line (total netearnings down -15.5% to $650m .. thelowest level in more than two years). EPS (basic) down to $2.31 (-15.4% vs2011, -4.9% vs 2010).Bright Spots - cash equivalents +3.07% -> $2.047 billion : not bad consideringexpenses the company faced in newproduct launches, store renovations,ecommerce, expansion of appareldepartment). Total comprehensive income for the yearis actually up +12.12% to $629 million. The difference is that, in 2011 there wereother actuarial losses that amounted to$208m which is 10

The bad - Fourth quarter profit was down-17.82%; that despite both quartersbeing 12 weeks long. In the other threequarters (q3 q2 q1) profit was down-5.9%, -19.3%, -22.2%, respectively. Same-store sales growth: -0.2% (vs +0.9% the year before) which is disappointing consideringSobeys (+1.4%) and Metro (+1.2%) showed strong growth (investors should be asking this: why is

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 8/11

Sobeys (+1.4%) and Metro (+1.2%) showed strong growth (investors should be asking this: why iscompetition affecting Loblaws more than Sobeys, Metro, Costco ?).X this year's amount.Also of note: This is the second year with Vicente Trius at the helm (hired Feb 24, 2011). Loblaws 3Q2012 (ended October 6, 2012) Loblaws profited C$222m in the third quarter of2012, -5.9% lower vs 3q11, that despite overall revenue being +1.03% higher ($9.827b,$9.627b of which is from food/clothing (+0.7). 36% of the increase in quarterly revenue camefrom the financial services segment (higher PC and Mobile Telecom sales, credit card businessalso grew). qoq asset value up by 2.63% to $17.354b. For the 3Q 16 week period: Food/Apparel: Gross Profit increased by +1.6% to $2.104b, Net Earnings fell -6.8% to $222m,same store sales contracted -0.2% (vs 1.3% growth last year). Operating Margin now @3.7%(was 4.3% in 2011). Dividend per share now 22c up 1c qoq. 40 week nine month period: Retail Segment: Sales up +0.83% to $23.671b, Gross Profit down -0.1% to $5.244b, samestore sales contracted by -0.2% (vs 0.4% growth last year). Financial Segment accounted for26% of the change in revenue over the nine months ($26m/$262m). more on Loblaws here

Loblaws 2Q2012 (ended June 18, 2012) profited only C$159m in the second quarter of2012, -19.3% lower vs 2q11, that despite quarterly revenue being +1.33% higher ($7.375bwhich is actually the highest quarterly revenue in the last 4 quarters). 18.6% of the increasein revenue ($18m/$79m) actually came from the financial services segment (nice consideringfinancial services only accounts for 1.8% of total revenue).

Ebitda (-7.5% --> $469m / -9.2% --> $878m for the half) and Net Earnings (-19.3% -->$159m / -20.6% --> $285m for the half) were also down significantly. According to Loblaw Companies in its quarterly report,there are a couple reasons for the relatively poor results: 1. Higher labour costs 2. marginallyhigher food sales (though Loblaws did attribute part of that to food price inflation whichaccording to the CPI index was 2.5% last quarter (down from 4.0% in 1Q2011) 3. $10m incustomer appreciation costs / loyalty programs 4. flat sales of apparel, joe fresh style,drugstore items. Dividends per share steady at 21 cents (41c for the half) even thoughEarnings Per Share were down -18.6% (70c --> 57c / 128c --> 101c for the half). June 2012:Loblaw Companies store number is now at 1046 (585 corporate / 462 franchise) up from 1032(578 corporate / 454 franchise) June 2011. Over the last 52 weeks loblaw companies added0.4m ft2 to sales space --> 50.2m. same store sales growth +0.2%.

1Q2012: Loblaws profited $126million in the quarter endedMarch 24, 2012 (1q12), adecrease of 22.2% over theprevious year despite salesincreasing by +0.9% to $6.937b; Keep in mind however that 1q12revenue is down -5.9% from theprevious quarter and is actuallyat its lowest level since 1q11(when revenue was $6.872b); Also consider that 0.8% ofthe revenue is attributable toone less day of store operations.98.1% of revenue orginated inretail where same-store sales fell-0.7%, gross profit fell -1.6% to$1.529b and operating incomewas 21.1% lower at $225m. Results were particularlydisappointing when operating margin (3.3% down from 4.2%) and gross profit margin (22.5% vs23.0%) are considered. Good News regarding 1q12: Loblaws opened 25 new stores but closed only 5 resulting in anet addition of 0.6 million square feet of sales space = +1.2%.Sales in clothing and other apparel was strong as was growth in revenue from gas stations(higher pump prices); Those factors compensated for flat sales in both food and drugproducts. There's been lots of negative pressure on Loblaws revenue stemming from flat foodsales and lower sales in drugstore, apparel and general merchandise.

Food retailing market share in Canada among grocers: According to the Atlantic Farm Focusthe supermarket industry in Canada is distributed among the Big 3 as follows: Loblaw Companies43%, Sobeys 21%, Metro Inc 16% (supermarkets only account for about 2/3's of the food market).(Atlantic Farm Focus: Sobeys to supply Target)

Not all sources quote the same market share. According to the USDA/Statistics Canada,

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 9/11

as of 2011 (report released March 9, 2012) Canada's food market is $88.0 billion in size(19.0% of Canada's total retail market size of $451b +6.0% vs 2008) and only 43% of that isrepresented by one of the 3 largest grocers (Loblaws 31%, Empire-Sobeys 18%, Metro Inc13%); All supermarkets combined represent 63.5% down from 67%.

--> new website launched at grocerynews.org --> indepth coverage of the grocery industry.

Loblaws Quarter ended Dec 2011 just released and the results for the last fiscal year are in.Though annual revenue (+2.7% to $31.25 b), ebitda (+5.5% to $2.083 b), profit (+13.9% to $769m),eps (+12.3% to $2.73) and same-store sales growth (+0.9%) were up across the board a closerlook reveals problems. The 62c eps in the latest quarter missed analysts expectations of 66c, grossprofit percentage actually fell 22.2% from 22.4% and the 3.6% sales increase in the 4q isattributable to an extra shopping day. But it did beat revenue projections of $7.24b in the fourth($7.37b).more on Loblaws..

Also disconcerting is the fact that gross profit from the food retailing business (98.2% of Loblaw Cos sales) barely saw

any gain on the year (0.49%) despite revenue rising to a record high (total company revenue surpassed $31b for the

first time ever). An abberation? Financial services revenue growth of 24.7% in the 4q was due entirely to increased

credit card use (Canadian household debt is among the highest in the world and there already are signs from Dec

2011 that Canadians are cutting back). Add to that the fact that basic earnings per share were up 5.1% in the 4q

compared to 18.3% qoq increase in the 3q (eps averaged over each week comes in at 5.17c in the 4q vs 5.25c in the

3q). Maybe that's why investors responded to Loblaw's highest year-to-year revenue increase since a 4.8% rise back in

2008 by pushing the stock down 5.7% the day of the release. Overhaul of the IT & supply chain will cost it about

$70m more in 2012 as it attempts to become more customer oriented. Some of the positives to consider: same store

sales grew in 2011 (+0.9%) something that didn't happen in 2010 (-0.6%) or 2009 (-1.1%). In 3Q 2011 Loblaws

profited $236M in the quarter ended October 2011, an increase of 19.8% over the previous year despite salesincreasing by only 2.0% to $9.7B; that was only the second quarter to quarter increase in revenue since a3.5% decrease back in March.

Remember also, regarding Loblaws that on March 3, 2011, the value of its assets going back two years, was adjusted

upwards in accordance to ratings agency IFRS standards which now takes into account previously unaccounted for

capital assets such as property, plant and equipment. The result? total assets 2009: 14.991b-->16.090b, 2010:

15.919b-->16.841b, 2011: 17.428b. Details on the change available here. In December 2011 Loblaws had 584

corporate stores (+8 vs 2010, -29 vs 2009) and 462 franchise stores (+11 vs 2010, +46 vs 2009). That compares

to under 300 Sobeys branded locations (629 total corporate) and 370 Metro branded stores. In 2011 $30.703 b of

sales came from retail (food+clothes, 98.25%) vs $547m from financial serv (1.75%) however financial services

contributed 5.2% of operating income ($72m) and 24% of the increase in 4q earnings (+$9m to $174m). Data from

Loblaws 2011 annual pdf report

Loblaws remains optimistic that it will weather new competition from Target when it begins shop in Canada in 2013

(same year Loblaws will move into e-commerce beginning with Joe Fresh Style). Target paid Hudson's Bay $1.8b for

Zellers leases.

Empire Theatres As of February 3, 2013 there are 52 locations with 434 screens which is down versus the

previous quarter. November 3, 2012 Empire-Sobeys owned 53 separate cinamas across Canada (up from 51)

consisting of 438 screens (up from 386 a year earlier). It the second largest movie exhibitor in the country !

Between May 2010 and May 2011 no net additional theater locations were reported by the company, but that

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 10/11

Between May 2010 and May 2011 no net additional theater locations were reported by the company, but that

changed in 2012 when 2 were added. In the fourth quarter of fiscal 2011 sobeys attributed the drop of 13.8%

in sales from other operations to lower box office attendance due to movies having less consumer appeal.

Discount Food (Nov/Dec 2011): Metro Inc: Food Basics, Super C (194 stores combined) Sobeys: FreshCo (64) and

Foodland (196) and Cash and Carry (9) Loblaws: No Frills (175), Value Mart, Wholesale Club, SuperValue, SaveEasy.

Sobeys parent Empire Company Limited has actually been controlled by the Sobeys clan since 1947when Frank Sobey bought it for its land and ability to be transformed into an investment company (1947

was also the year Sobeys opened its first supermarket store in Pictou).

It was on the eve of Sobeys' 100th anniversary (celebrating JW's birthday, originally a marketer of meats)that Sobeys purchased Empire Company outright, acquiring the 27.9% of shares it didn't already own, for

$1.06B or $58/share (April 26, 2007). That represents a $2-4 premium over the fair market value(Sobeys shares were delisted from the TSX on May 2, 2008).

Quebec Sobeys has a significant presence in Quebec but not in the traditional sense; More than half ofthe locations are smaller supermarkets Marche Benichoix, Les Marche Tradition (118 combined). Theonly full service brand that it operates there that competes with Metro's 370 stores is IGA. Half of theover 200 IGA stores are IGA Extra located in suburban areas.

Brand Diversification and the Ethnic Market

Sobeys has also been more open to diversification

of its brands; After Metro acquired A&P it spent $200M to completely convert Loeb/A&P locations into Metro

stores, however Sobeys chose a different route; After acquiring Price Choppers in the 1990's it left the brand

largely intact for more than a decade before rebranding it as FreshCo, the other acquisition IGA/Oshawa

Group ($1.5B deal in 1998 tripled its size and made it into a national company) was left intact. Initially,

Sobeys did this in a bid to win over customers through customer appreciation efforts however brand

diversification appears to have benefited Sobeys in the long run by allowing it to tap into different markets

more effectively (Loblaws gained a bigger market share after it acquired T&T and launched No Frills in 1978

and now Sobeys is doing the same with FreshCo). FreshCo has proven popular among ethnic customers, a

consumer base that already represents over 35% of shoppers in Ontario and will represent 31% of all

Canadians by 2031. Only about 12% of the grocery market in the maritimes is in the discount market, that's

in stark contrast to Ontario (45%) and Quebec (33%). In the discount market Loblaw's No Frills leads all other

grocers, just the 152 No Frills

stores in Ontario made $3.4B in

sales last year more than

Sobey's FreshCo and Metro's

Food Basics combined. (June

2010: Grocery Trade Review)

Sobeys has experienced

tremendous growth over the

last decade even before its

recent successes, between

2001 and 2006 Sobeys stock

price rose by over 68%.

Sobeys also has a significantstake in Canadian realestate Crombie REIT: interestwas 42.7% in August 2013,42.8% in May 2013, 42.9% inFeb 2013, 43.0% in Nov 2012,44.6% in Feb 2012, 45.9% late2011, 46.5% Jan 2011. Owns 40.7% of Genstar Development Partnership. With Canadian real estate pricesclimbing (average home price up 6.5% in September/# of properties sold up 2.7% qoq) those investments are

27/11/2013 loblaws sobeys competition (supermarkets)

www.northamericaninterests.ca/loblaws-sobeys.php 11/11

climbing (average home price up 6.5% in September/# of properties sold up 2.7% qoq) those investments arebound to pay off. Crombie Reit's properties include both high end assets (Barrington Place Shops, CogswellTower, CIBC Skyscraper in Halifax) and more traditional retail assets (Greenfield Park IGA plaza, Quebec).Sobeys also holds 100% ownership of Canada's second largest chain of movie theaters, Empire Theatres(Sobeys has operated cinemas since 1984). 2011 is also the year Sobeys converted most of its mainlinelocations into 24 hour supermarkets taking away from Superstore a key competitive advantage. About 85%of Empire's assets are associated with the food retailing business). Sobeys first reached $1 billion in salesin 1987, in 1999 (2000 fiscal year) Empire-Sobeys sales surpassed $10 billion for the first time,reflecting the first full year the Oshawa Group was part of it. Although revenue increased 75% that year, netincome fell 35.7% to $86.7m.

Food retailing makes up 98% of sales and 90% of operating

income (2011 & 2010). The commercial real estate business

contributes about 30% of funds from real estate operations

even though it only contributes less than 15% of real estate

revenue. Food Retailing: net debt/net total capital ratio was at

its lowest level in 2011, hitting 13.4% it was as high as 32% just

three years ago (2008). There are about 289 standalone

Sobeys locations across Canada (23% of the company's

locations). In fiscal 2011 57 freschco stores were

opened, which exceeds units opened by main competitor

No Frills.

Other Key Info

-> In 1999 it acquired the Oshawa Group,owner of IGA Canada ($1.5b increasedsales by about 75% or $4b). In March2002 Sobeys sold Serca Foodserviceformerly part of Oshawa Foods to SYSCOfor $411M. Since March 2006 Sobeys sold105 properties to Crombie REIT raising

897M in 2 transactions. In 2011 Sobeys

divested itself of Wajax stock by selling

27.5% of Wajax Income Fund for $121.3M (used the proceeds to pay down debt). The market value of all of

its real estate investment holdings was 451.2M on May 7, 2011 comapred to $487.7M a year earlier

(decrease was due completely to the divestment of its Wajax investment which was worth 117.9M in 2010).

-> Sobeys went private in 2007 when it became a subsidiary of Empire Company Limited followingEmpire's purchase of $1.06B worth of Sobeys outstanding common shares bringing its interest up to100%. The company's 2011 revenue is 61% higher than it was in 2002 (145% increase in book valueper share: 47.76).-> In 2010 Sobeys lowered its debt to capital ratio from 32.7% down to 29.3% and consequently (in May)

both Standard & Poor's and DBRS raised Sobeys credit rating. During fiscal 2010 food retailing/real estate

represented 94% of net income. At the end of 2010 total locations (food retailing) under the various banners

were 1,334 (28.1m square feet) in 836 communities. In 2011 free cash flow fell to $132.6M from 350.1M. In

2011 the company expanded 12 stores (down from 13 in 2010/11 in 2009), opened 44 (up from 41 in

2010/47 in 2009) and closed 39 locations (down from 52 in 2010).

By the end of September 2011 Sobeys lowered its funded debt to capital ratio to 25.5% down

from 30.3% the previous year. Since 2001, fiscal year d ividends have more

than quadrupled from 20c to over 80c per share.Though already the largest food retailer in Canada with over 13M Canadians shopping there weekly(40-43% market share), Loblaw Companies is gradually transforming into a hypermarket with amajor expansion into the textile/clothing industry underway. Joe Fresh Style has stand alone storesin the United States and has plans to open 4 more in Toronto and Quebec in the second half of2011. Revenue at Loblaw Companies fell slightly in the second half of 2011 to $14.15B from $14.18B.