Sobeys' Empire

Sobeys' Empire

The big brick mansion breaks the gentle curve of the northwestern shore of Nova Scotia. Frank Sobey, the man who built Abercrombie House, lived on and off in the waterfront home until he died in 1985 at the age of 83. Now, the only people who stay there usually are family friends, visiting dignitaries and directors of Empire Co. Ltd., the conglomerate he also built. They enjoy meals made by the live-in help and, perhaps, sip a cocktail looking out over the water. Often, though, their eyes focus on the paintings lining the walls, which include works by Cornelius Krieghoff, A. Y. Jackson, Tom Thomson and Arthur Lismer, along with many other early and contemporary Canadian artists. Experts say that the country's best private collection of Canadian art is owned by Canadian media billionaire Kenneth Thomson. But the second-best collection may well hang in this house, on an inlet off Pictou Harbor, a few kilometres from the tiny, tapped-out mining town of Stellarton.

The treasure trove of art seems out of place in economically depressed Pictou County. But so do the sprawling grocery, real estate and investment interests that Frank Sobey and his offspring quietly forged in the same unpromising spot. Empire, their 55-per-cent-owned holding company, commands 17,000 employees and controls nearly $2 billion in assets - which makes the low-key, cost-conscious clan almost as powerful and influential in Nova Scotia as the Irving and McCain families are in New Brunswick. Over the years, the combative Sobeys have fought and won long, bloody battles with big national companies trying to enter their home turf. When important local enterprises teetered on the brink of failure, the Sobeys routinely helped prop them up. Through it all, they remained largely anonymous outside their small Maritime pond. But that was before Empire's $1.5-billion November bid to take over the Oshawa Group Ltd., which franchises more than 1,000 food stores in Central Canada and the Prairies, including IGA outlets. The deal, which closed last week, has given the rest of Canada a startling introduction to Nova Scotia's first family of business. "We are what our heritage has made us," says Paul Sobey, Frank's grandson and Empire's chief executive officer. "We are hard workers. We are not high rollers. We are prudent operators committed to the growth and development of all our operating businesses."

Thus it has always been. What Sobey means by heritage is the industrious Presbyterian Scots who settled in Pictou County in the mid-19th century to make steel and rail cars and dig for coal. Paul's great-grandfather John William (J.W.) Sobey worked the mines and the family farm before quitting in 1905 to become a butcher and peddle meat door-to-door in Stellarton from a horse-drawn wagon. Seven years later, the first Sobeys Food Store stood on Main Street. J.W.'s son Frank - a business college graduate who, even as a teen, liked to pore over financial statements in his free time - was living upstairs as he sharpened his grand plan for expanding the family business. "When you are in business, you either create growth or go stagnate," he said in a rare 1969 interview. "You can't stay still."

As clichéd as those words seem, the Sobeys have lived by them. Over the past three decades, the patriarch's sons, nephews and grandsons have taken his vision and writ it large across the region. The food operations - 115 supermarkets, a line of wholesale stores, and a supplier of restaurants and institutions - still make up the lion's share of company revenues, which hit $3.3 billion in the fiscal year ending April 30, 1998. Empire also owns a string of movie theatres and a chain of drugstores throughout Atlantic Canada, as well as more than one million square metres of commercial real estate, most of it East Coast shopping malls. Its investment portfolio includes 43 per cent of Wajax Ltd., a British Columbia-based manufacturer of heavy equipment, and a 25-per-cent stake in Hannaford Bros. Co., a New England grocery chain.

In recent years, though, the modern-day mantra of increasing shareholder value has registered as loudly in Empire's Stellarton headquarters as it has through the towers of Bay Street. Paul Sobey, who became Empire's chief executive last July, calls the process "taking a look at where our capital has been invested and redirecting it into areas where it will provide the best returns." The upshot: over the past five years, Empire has sold minority stakes in Toronto brick manufacturer Jannock Inc.; National Sea Products Ltd., the Lunenburg, N.S., seafood company; and Provigo Inc., its Montreal-based grocery competitor that last week was taken over by Loblaw Cos. Ltd. Instead of pulling back, Empire poured a massive $550 million into its core business of groceries, real estate and drug stores during the same five-year period.

That spending spree, already huge, was topped by the Oshawa bid. The latest move, which gives Empire a grocery chain that stretches as far as Alberta with total annual sales of more than $10 billion, represents a quantum leap for the Nova Scotia firm. Yet management says there was nothing impulsive about the deal, even though it was announced in the same week that Provigo and Loblaw made it known they were planning to merge. Grocers across the continent have a similar problem: with low profit margins the industry norm, they must rely on heavy sales volume to make money. "Going national means you have more buying power and get a better bang for your buck," explains Douglas Stewart, chief executive of Sobeys Inc., the grocery store side of Empire's business.

In this case, Empire insiders say the decision to go national also signifies something important about the Sobey family - that the new generation is willing to take the risks necessary to propel the company forward. Frank's sons, Donald, who at 63 is Empire's chairman, and David, at 67 the chairman of Sobeys, still carry the most boardroom clout. But Paul, 42, a Harvard-educated chartered accountant, has risen to the apex of the new generation, and his opinion counts heavily with the high-powered Empire board, which includes such luminaries as Bank of Nova Scotia chairman Peter Godsoe and Sir Graham Day, the privatization guru to former British prime minister Margaret Thatcher. Even if Paul falters, the upper ranks of the Empire organization are riddled with Sobeys: Frank, 45, is chairman of Atlantic Shopping Centres, which holds most of the real estate assets; John, 49, is president and chief operating officer of Sobeys Inc.; Karl, 41, is president of the retail operations of Sobeys Inc.

Outside the office, the Sobeys, like most wealthy Maritime business dynasties, are hardly flamboyant. But scandal is not unknown to them. In August, 1991, Donald pleaded guilty and was fined $750 for sexually assaulting a young man in a Halifax hotel room. Mostly, though, the Sobeys conduct themselves like average members of Pictou County's business and professional gentry - joining the Abercrombie Golf Club, angling for salmon on local rivers and, come summer, heading for their cottages on the Northumberland Strait. Most of them drive Volvos. Although Paul lives in a huge riverside mansion, the others opt for well-appointed, but less ostentatious, homes in Stellarton and surrounding hamlets, where they are known to be convivial entertainers with fine wine cellars.

It helps, perhaps, knowing that if Stellarton ever feels a touch too small, the corporate jet is always parked nearby and Frank's secluded estate still stands waiting in Bermuda, down the lane from the mansion where New Brunswick billionaire Kenneth Colin Irving lived out his final years. Around Stellarton, though, the Sobeys are known as good corporate citizens who are as committed to the community as the old family patriarch, who served unopposed as town mayor for more than 20 years. "Heavens, if they were ever to pull out, all of Pictou County would be in a pickle," says Stellarton Mayor Art Fitt, who once worked as a part-time shelf stocker at a Sobeys store. The Oshawa takeover means that Empire will have to move some of its head-office functions to Toronto and other centres in Canada. But, stresses Paul Sobey, "the headquarters will remain in Stellarton." The Sobeys, after all, have no intention of forgetting their roots or the lessons they learned there - which now, for the first time, are going to be tested far from the province they have made their own.

Loblaw Fights Back

Say this for the people who run Caisse de dépôt et placement du Québec: they know desperation when they see it. By playing hardball last week and refusing to bite at Loblaw Cos. Ltd.'s $15-per-share bid to take over Quebec grocery retailer Provigo Inc., the province's gigantic government-owned pension plan squeezed another $120 million out of Loblaws, which is controlled by Ontario grocery baron Galen Weston. In the end, Loblaws had to raise its cash-and-stock offer from $1.62 billion to the equivalent of about $1.74 billion, and strengthen guarantees to buy from Quebec farmers and suppliers before the caisse would agree to sell its 35-per-cent stake in Provigo.

Loblaw, in an odd way, was backed into a corner. Consolidation, after all, is the rallying cry in today's North American grocery business. Although already Canada's biggest grocery operator, Loblaw had not made an acquisition in a decade. And suddenly, with the Sobey clan bursting out of the east, a big new competitor was pounding on its door.

The merger at least provides breathing room. The new company will have sales of $17 billion, making it far bigger than the $10-billion-a-year Sobeys chain that will emerge from Empire Co. Ltd.'s $1.5-billion takeover of Oshawa Group Ltd., which also received shareholder approval last week. Loblaw, which already has a dominant position in Ontario, now becomes the major player in Quebec, where Provigo is the largest food wholesaler with 35 per cent of the market.

Toronto-based Loblaw has quickly learned the politically-charged nature of doing business in Quebec. As part of the deal, which was announced on the day of the provincial election, Loblaw agreed to continue to operate Provigo as a separate entity based in Montreal, to maintain the current 17,000-strong Quebec workforce and to publish regular newspaper notices over the next seven years outlining how much it is buying from Quebec suppliers. But those are only minor inconveniences in the long run - especially amid a rough-and-tumble fight for supremacy in Canada's grocery business.

Maclean's December 14, 1998