2. devised an interim growth plan called Project Sunrise, which
had two main objectives: quickly relieving
Sobeys of its troubled financial situation and preparing for the
long-term industry disruption that was
becoming prevalent, both locally and globally.
LEARNING OBJECTIVES
Students can assess Medline’s road map for the execution of
Project Sunrise and learn how to develop and
apply a long-term plan for a company facing industrywide
disruption. After completion of this case,
students will be able to accomplish the following objectives:
or the company to manage the
imminent industry disruption.
POSITION IN COURSE
This case is suitable for courses in undergraduate, graduate, and
executive education programs. It can be
used in courses that focus on strategy, change, managing
disruption, turnarounds, and competitive
repositioning.
RELEVANT READINGS
Wamelen, “Reviving Grocery Retail: Six
Imperatives,” McKinsey & Company, December 2018, accessed
3. December 21, 2019,
www.mckinsey.com/industries/retail/our-insights/reviving-
grocery-retail-six-imperatives.
This publication may not be transmitted, photocopied, digitized,
or otherwise reproduced in any form or by any means without
the
permission of the copyright holder. Reproduction of this
material is not covered under authorization by any reproduction
rights
organization. i1v2e5y5pubs
Page 2 8B20M017
Growth: A Guide to Strategic Cost Cutting,
Restructuring, and Renewal (Hoboken, NJ: John Wiley & Sons,
2017).
and Stephanie Halgren, “How to Become a
Customer-Centric Grocer,” Boston Consulting Group, April 6,
2017, accessed July 12, 2019,
www.bcg.com/en-ca/publications/2017/retail-winning-
strategies-retail-transformation-how-to-become-
a-customer-centric-grocer.aspx.
“Turning Strategy into Results,” MIT
Sloan Management Review 59, no. 3 (2018): 1–12.
4. SUPPLEMENTAL RESOURCES
Warehousing,” YouTube video, 2:24, posted
by “The Canadian Press,” June 16, 2017, accessed December 26,
2019,
www.youtube.com/watch?v=vyGG-TtOBHk.
beys Star of Christmas,” YouTube video, 1:00, posted by
“Sobeys,” November 18, 2016, accessed
December 26, 2019, www.youtube.com/watch?v=oZzEzieGNBI.
ASSIGNMENT QUESTIONS
1. What are the disruptive forces in the grocery industry?
2. What specific issues is Medline facing?
3. What factors should Medline consider in turning the regional
structure into a functional organizational
structure?
4. What factors should Medline consider in reducing costs and
generating quick wins?
5. How should Sobeys get closer to its customers?
6. What should be the next steps for Sobeys?
Discussion Points
Introduction
5. Disruptive forces in the grocery industry (assignment question
1)
Specific issues facing Medline (assignment question 2)
Changing the organization structure (assignment question 3)
Reducing costs and generating quick wins (assignment question
4)
Getting closer to customers (assignment question 5)
Looking ahead (assignment question 6)
Wrap-up
ANALYSIS
1. What are the disruptive forces in the grocery industry?
For the analysis of this first question, students are likely to
mention several disruptive forces, which can be
listed on the board as they are raised. The discussion can then
focus on three main points, which the
Page 3 8B20M017
instructor can ensure are raised: changing consumer
expectations, increasing level of competition, and
proliferation of new technologies.1 The instructor can
emphasize to the class that all three forces have been
present for some time, but the speed and magnitude of their
disruption to the grocery industry have recently
increased, which is alarming retailers in general and grocers in
particular.
6. Changing Consumer Expectations
The rise of the millennial consumer segment (i.e., people born
between 1981 and 1996) has altered the
country’s demographic mix. Millennials represent 36.8 per cent
of the Canadian workforce, compared to
30.9 per cent of baby boomers (i.e., people born between 1946
and 1964) and 32.9 per cent of the Generation
X segment (i.e., people born between 1965 and 1980).2 This is a
tipping point that has disrupted a range of
industries, including the grocery market.
Today’s grocery consumers also expect to be able to buy
groceries anytime and anywhere, and “at low prices
to boot,” according to a McKinsey & Company report.3 They
want to make healthier food choices. They want
to know how their purchases are sourced. They are value
conscious, pursuing deals and discounts to save
money. They want convenience, seeking food items on the go.
They want ready-to-eat foods. They are drawn
to the seamlessness provided by omnichannel retailing. These
changes are unsettling traditional grocers.
One behavioural change common to every demographic group,
including millennials and baby boomers,
has posed an enormous challenge for the grocery industry:
people are less inclined to cook. This issue is
likely to resonate with students, especially if the class
comprises mainly of young people. According to a
2014 survey commissioned by Sobeys,4 Canadians generally
prefer home-cooked meals, but a substantial
number of individuals are disinterested in cooking. This is an
area of opportunity for a grocer such as
Sobeys, which is already marketing ready-made meals.
7. Increasing Level of Competition
As the case points out, grocery retailing in Canada is a zero-
sum industry because of the high level of
concentration at the top. The middle area of the market is also
highly competitive and consists of multiple
formats, including club stores, convenience store chains,
discounters, dollar stores, and pure-play online retailers.
One major market disruptor is Amazon Inc. (Amazon). The e-
commerce giant’s collaboration with Whole
Foods Market Inc. (Whole Foods) is a game changer.
Traditional grocers will find it difficult to match the
powerful combination of the digital strengths of Amazon and
the brick-and-mortar network in North
America of Whole Foods.
1 Dymfke Kuijpers, Virginia Simmons, and Jasper van
Wamelen, “Reviving Grocery Retail: Six Imperatives,”
McKinsey &
Company, December 2018, accessed December 21, 2019,
www.mckinsey.com/industries/retail/our-insights/reviving-
grocery-
retail-six-imperatives, 2.
2 Graham F. Scott, “Millennials Are Now the Biggest
Generation in the Canadian Workforce,” Canadian Business,
June 3,
2015, accessed August 14, 2019,
www.canadianbusiness.com/innovation/the-millennial-majority-
workforce.
3 Kuijpers, Simmons, and van Wamelen, op. cit.
4 “Millennials Say They’re Not Cooking Savvy,” Ontario
Mutuals, July 22, 2014, accessed September 16, 2019,
https://ontariomutuals.ca/food-wellness/millennials-say-theyre-
8. not-cooking-savvy.
Page 4 8B20M017
Discounters, convenience store chains, club stores, dollar
stores, and pure-play online retailers have also
entered the grocery market. McKinsey & Company also found
that between CA$200 billion5 and $700
billion in revenues from traditional grocery retailers could shift
to other formats and channels by 2026.6
Proliferation of New Technologies
Some examples of new technologies becoming an important
factor in the grocery industry include big data,
advanced analytics, artificial intelligence, robotics, and the
Internet of Things. For example, big data uses
social media to help companies track consumer perception about
products in real time. Data-driven
personalization, networks, and scale effects help drive down
costs and lock in customers. Leading grocers
are perfecting the deployment of cutting-edge technologies,
while traditional grocers find themselves
constantly working to catch up.
After students identify the market’s disruptive forces, the
discussion should turn to how Sobeys is preparing
for disruption. Sobeys is a legacy organization and a typical
incumbent. Disruption is therefore likely to be
raised frequently by students. The instructor can refer students
to a 2017 study by Paul Kinsinger, Lee Ann
Del Carpio, Karen Walch, and Andreas Schotter that makes a
9. case for the “Humble Incumbent.”7 According
to senior leaders across multiple industries, embracing humility
is critical at various stages of preparing
organizations for disruption. In researching how humility
manifests itself among incumbents, the authors
discovered five major phases that companies go through when
preparing to face disruption: (1) facing up
to the challenges and opportunities posed by disruption; (2)
committing to action; (3) executing a “straddle”
strategy in unknown and uncharted waters; (4) leading,
engaging, and evolving the organizational culture;
and (5) championing continuous learning.8
Sobeys appears to be currently in phase three of these five
phases. However, the instructor can lead a
discussion on how Sobeys has been positioning itself in relation
to each phase. The discussion can cover
whether Sobeys qualifies as a “humble incumbent,” considering
that both the Sobeys organization and its
CEO are Canadian, in stark contrast to the business environment
prevalent south of the border (in the United
States).
To complete the discussion of this first question, the instructor
can ask students to place Sobeys in the
appropriate quadrant of how incumbents face disruption:
listener, embracer, defender, or operator (see
Exhibit TN-1). Students are likely to take different positions,
but if the general verdict leans toward Sobeys
being an embracer, it is a vote of confidence from the class in
the company’s ability to manage disruption.
2. What specific issues is Medline facing?
The main concern confronting Sobeys is imminent bankruptcy
10. and available options to avoid it. The
instructor can ask students to raise some potential options,
which may include access to new capital, closing
loss makers, finding new alliance partners, or radically
changing the overall business model. The instructor
can also ask students to consider whether Project Sunrise is a
feasible solution for the company’s current
5 All currency amounts are in CA$ unless otherwise specified.
6 Kuijpers, Simmons, and van Wamelen, op. cit.
7 Paul Kinsinger, Lee Ann Del Carpio, Karen Walch, and
Andreas Schotter, The Case for the “Humble Incumbent:”
Preparing
for Disruption in Legacy Organizations, 2017, accessed
September 17, 2019,
https://static1.squarespace.com/static/574c91c09f726665ee332f
cd/t/59910acbe58c6284b2a8787e/1502677716928/TheCas
eForHumbleIncumbent-v8b.pdf.
8 Ibid.
Page 5 8B20M017
situation. The discussion should generate a variety of opinions
from students, before moving on to facts
and clear comparisons of the different options.
The question is whether there is a need for Project Sunrise,
which has been strategized by Medline as a stop-
gap solution, before pushing toward growth. Some students may
suggest that Sobeys could have skipped
Project Sunrise in favour of strategic renewal. The instructor
should invite a discussion on this point.
11. Some students will stress that Medline has had some success
with Project Sunrise, including four main
achievements. First, he has secured companywide buy-in by
holding employee town hall meetings as a
forum to communicate what must be done, which was a major
step for the CEO. Second, he has secured
alignment at the board level by forming a dedicated board
committee to oversee Project Sunrise. Third, he
has ensured focus on execution by setting up a transformation
office. Fourth, he has set a specific
quantitative savings target of $500 million on an annualized
basis, to be achieved within a specific period
of three years.
What should become clear to the class is that Project Sunrise is
a well-thought-out strategic response. If it
fails, it will only be due to poor execution.
At this point, the instructor can ask students to suggest what the
CEO may have missed. However, taking
the discussion into such a detour could lose the focus of the
analysis for this question. The list of potential
factors that the CEO has failed to consider is extensive.
3. What factors should Medline consider in turning the regional
structure into a functional
organizational structure?
Based on information provided in the case, corporate support
functions such as finance, information
technology, human resources, strategy, and legal have remained
centralized and keep reporting to Medline
(see case Exhibit 6). However, five other area heads now report
12. to Medline: (1) operations, which is
responsible for driving in-store execution and efficiency across
grocery banners and regions; (2)
merchandising, which determines the suite of products and
programs that drive gross margin across banners
and regions; (3) related businesses, which facilitate a sharp
focus on the pharmacy, wholesale, fuel,
convenience, and liquor businesses; (4) discount format; and (5)
marketing, which has a national
responsibility for customer focus, brand management, and
digital innovation.
Structure follows strategy, rather than the other way around.
Therefore, for the analysis of this question,
students should use the following criteria:
? Does it keep Quebec
and discount businesses distinct, while
harmonizing the way they operate nationally? Does it ensure
focus on the core grocery business by
separating related businesses such as pharmacy and fuel into a
distinct structure? (Yes.)
Does it mark the beginning of a broader organizational design
process? (Yes.)
throughout the balance of the year? (Yes.)
Overall, the new structure seems to be in good shape.
13. Page 6 8B20M017
At this point, the instructor can ask students to examine
drawbacks of the old organizational structure, given
the new challenges that Sobeys is facing. Each region was a
silo, maintaining its own operations and marketing
division. There was little coordination. There was duplication
and overlapping. Economies of scale were not
being accomplished. Decentralization was undermining swift
responses to changing macro trends.
The instructor can then ask students to examine advantages of
the new organizational structure. Since May 2017,
the company has eliminated 800 duplicate and overlapping
positions. However, the company risks creating an
unproductive environment and negative sentiments in the
communities within which Sobeys operates.
The instructor can also ask the class if the company should
continue to operate with headquarters in the
rural town of Stellarton, Nova Scotia. Student opinions are
likely to vary on this point.
4. What factors should Medline consider in reducing costs and
generating quick wins?
A starting point for the discussion of this question is whether
Project Sunrise is an additional cost burden
for Sobeys. It is definitely not a cost burden. The total cost of
implementing Project Sunrise is estimated at
$240 million. The expected payoff from Project Sunrise is $500
million annually for three years, based on
Sobeys’s conservative projections. Therefore, the return on
14. investment is substantial.
At the beginning of this discussion, the class should consider
potential areas for cost savings, which include
employee reductions, process improvements, enterprise-wide
efficiencies, supply chain reductions, and
productivity initiatives. Employee reduction represents an
obvious saving for Sobeys, reflected by the 800
jobs identified as redundant after changes to the organizational
structure.
At this point, the instructor can discuss the following key
takeaway for the class. Sobeys must make a clear
distinction among three types of expenses: costs incurred to
operate efficiently (casually referred to as
“keeping the lights on”); costs required to compete effectively
in the grocery industry; and costs necessary
to build sustainable competitive advantages (see Exhibit TN-2).
Medline has made it clear that the third of
these three types of expenses should not be compromised.
The discussion should then shift to the strategic approach for
cost reduction initiatives, which consist of
three major elements: setting objectives, identifying
differentiating capabilities, and selecting the levers for
transforming the cost structure.9
It is important to emphasize that the first of these three
elements, setting objectives, comprises fixing not
only a numerical target for overall financial savings but also a
time frame for achieving it. Sobeys has set a
target of $500 million in annualized savings over three years,
between 2017 and 2020. Also, setting a stretch
target motivates people to break free from current modes of
operation and think creatively about cost
reduction opportunities. The class should notice that on a
15. revenue of about $24 billion (in 2016), a savings
target of $500 million works out to a little over 2 per cent of
revenue.
5. How should Sobeys get closer to its customers?
Grocery incumbents tend to track their competitors more closely
than they track their customers. This is
evident from the performance metrics they measure and monitor
each day. Grocery managers are
preoccupied with metrics related to sales. They are obsessed
with two metrics in particular: sales per square
foot (or square metre) and same-store sales. Next in priority are
metrics related to inventory management.
9 Vinay Couto, John Plansky, and Deniz Caglar, Fit for Growth:
A Guide to Strategic Cost Cutting, Restructuring, and Renewal
(Hoboken, NJ: John Wiley & Sons, 2017).
Page 7 8B20M017
Grocery companies track these metrics more steadily and
closely than the shopping behaviours of
customers. But with the increase in choice and the emergence of
online rivals, grocery incumbents need to
become much more customer-centric.10
At this point, the instructor can ask the class, “What should
Medline do to make Sobeys customer-centric?”
Linking customer centricity to the company’s purpose is a sure
way to succeed. Sobeys should work toward
16. developing a corporate culture that makes customer centricity
an integral part of “the way we do things
around here.” The purpose could be articulated in statements
that are simple and easy to understand for
employees. Students should recall the four pillars of brand
positioning discussed in the case: “WOW fresh,”
“Speed scratch,” “Healthy wholesome,” and “Sustainable.”
Sobeys could build on these four pillars to
develop specific themes around customer centricity, such as tag
lines that might state “Our produce is
always fresh,” or “We delight our customers.”
Sobeys should also incorporate key performance indicators
(KPIs) to provide a measure of and incentives
for customer centricity. KPIs would be an addition to the
dashboard of an operating manager. The metrics
must be fine-grained. Their granularity will help managers
convert the qualitative experiences that the
company’s stores are delivering to customers into quantitative
benchmarks, which can then be analyzed to
further improve customer experience. KPIs would come in two
types: in-store metrics (such as product
availability, time spent in checkout lines, and store cleanliness)
and loyalty measures (such as a customer’s
willingness to recommend Sobeys to friends).
A more exploratory discussion could evolve regarding how tools
such as big data can personalize store
offerings to individual customers. As the case study points out,
large incumbents such as Loblaw
Companies Limited and Metro Inc. have already made some
progress in this respect. Analytics can be used
to determine how individual customers cruise along shopping
aisles, looking for products of their choice.
The data could be used to understand the potential trade-offs
associated with operating decisions, such as
17. pricing and promotions.
6. What should be the next steps for Sobeys?
Project Sunrise may well yield the desired results. But what
should Sobeys do beyond that? How should it
prepare to face the future?
The instructor can present to the class the following three
options that Medline should consider:
Value Proposition
Sobeys should develop a distinctive offer based on both
convenience and value for money. Store locations
that are easy to reach are only part of customer convenience.
Sobeys’s assortment should include grab-and-
10 Gavin Parker, Thomas Jensen, Pascale Morillon, Bill Urda,
and Stephanie Halgren, “How to Become a Customer-Centric
Grocer,” Boston Consulting Group, April 6, 2017, accessed July
12, 2019, www.bcg.com/en-ca/publications/2017/retail-
winning-strategies-retail-transformation-how-to-become-a-
customer-centric-grocer.aspx.
11 Kuijpers, Simmons, and van Wamelen, op. cit.
Page 8 8B20M017
18. go items. It should provide other conveniences such as self-
service options, express checkouts, home
delivery, and in-store services. Value for money is a common
proposition among grocers. Sobeys should
reduce its sourcing costs through nationally integrated supply
chain processes. The move from a regional
to a national organization structure should be reinforced.
Shaping the Ecosystem
Sobeys should bet high on scaling up. Partnerships are a good
method. Sobeys should seek collaboration in
segments that are not part of its core competence, such as
analytics and technology, but that are crucial to
strengthening the core business of grocery. An area where
Sobeys can gain ground over its peers in Canada
is omnichannel retailing, which is considered a future concept.
Omnichannel retailing provides customers
with an opportunity to move seamlessly between online and
offline channels. For example, customers can
order online and pick up the order at a physical location of their
choice.
Putting Technology to Work
Digital solutions and advanced analytics are only some of the
technology tools that Sobeys should use to
establish customer engagement as a source of differentiation in
a competitive industry.
WHAT HAPPENED
19. A major external development was that Amazon acquired Whole
Foods for US$13.7 billion in June 2017,
increasing the competitive pressures on grocery incumbents like
Sobeys.
Project Sunrise started yielding results within four weeks of its
launch. In June 2017, Sobeys achieved positive
same-store sales for the first time in six quarters (see Exhibit
TN-3). In September 2017, the company
reinforced its ongoing supply chain initiatives by creating a
supplier partnership council comprising a select
group of large and small vendors across Canada. The council
provided weekly feedback to the company on
supply bottlenecks. It also met formally at the company’s head
office every quarter for two days.
In November 2017, Sobeys aired a one-minute-long commercial,
titled “Secret Santa,” as part of its much-
admired “Create a Little Holiday Magic” marketing campaign.
The “Secret Santa” commercial assumed a
storytelling approach, shifting the focus away from products in
its stores and toward people in its stores.
In January 2018, Sobeys announced a partnership with the
British online supermarket Ocado Group for an
Internet grocery platform. In September 2018, it acquired the
Ontario-based natural foods supermarket
chain Farm Boy Inc. for $800 million.
Page 9 8B20M017
20. EXHIBIT TN-1: HOW INCUMBENTS ARE FACING
DISRUPTION
Embracers are highly aware of the shift and culturally open to
it. They are already leading the shift in their
industries, even though they might be industry leaders with
best-in-class performance. Humility is
evidenced in virtually all management processes, from strategy
review to innovation and from recruiting
talent to reward and recognition, with a primary belief that in
disruptive times, there is much we do not know.
Defenders have a low awareness of not only the drivers of
disruption but also the looming imperative to
start the shift. They are not open to change in general, while
investing more energy and resources in
defending against change that might disrupt the status quo or
that represented a proven formula for success
in the past. They are risk avoidant or have slipped into
complacency. They are just arrogant. Humble
leadership practices such as challenging assumptions, widening
perspectives, experimenting, and
releasing long-standing beliefs are regarded with suspicion and
often squashed.
Listeners are companies that exhibit a low-to-medium level of
overall awareness of the imperative for
engaging disruption, but culturally, they are more open to
change than Defenders. They adopt many
practices that are infused with humility, such as acknowledging
the need for continual learning, asking tough
questions to challenge growth, and even seeking learning from
other contexts. However, because they in
21. general perceive a lower level of urgency to change, they tend
to stay longer in listening mode, before
engaging in organizational action.
Operators have begun engaging at the levels of board of
directors or company executive. However, they
still have low levels of overall openness, because the
overwhelming focus of the enterprise remains on
operational excellence. Humility allows them to consider being
receptive to conceptualizing new ways of
creating value, but they remain beholden to the Industrial Age
machines they have built, their key
performance indicators, and the tyranny of short-termism.
Source: Adapted by the case authors from Paul Kinsinger, Lee
Ann Del Carpio, Karen Walch, and Andreas Schotter, The
Case for the “Humble Incumbent:” Preparing for Disruption in
Legacy Organizations, 2017, accessed September 17, 2019,
https://static1.squarespace.com/static/574c91c09f726665ee332f
cd/t/59910acbe58c6284b2a8787e/1502677716928/TheCas
eForHumbleIncumbent-v8b.pdf, 5.
Page 10 8B20M017
EXHIBIT TN-2: IDENTIFYING COST REDUCTION
OPPORTUNITIES
Note: SG&A = selling, general, and administrative expenses
Source: Adapted by the case authors from Vinay Couto, John
22. Plansky, and Deniz Caglar, Fit for Growth: A Guide to Strategic
Cost Cutting, Restructuring, and Renewal (Hoboken, NJ: John
Wiley & Sons, 2017), 29.
EXHIBIT TN-3: EMPIRE COMPANY LIMITED
CONSOLIDATED INCOME STATEMENT
(IN CA$ MILLION)
Fiscal Year Ending May 30 2017–18 2016–17 2015–16
Revenue
Add: Other Income
Less: Cost of Goods Sold
Less: Selling, General, and Administration
Less: Impairment of Goodwill
24,215
135
18,314
5,690
—
23,806
125
18,099
5,500
—
24,419
75
23. 18,661
5,424
3,027
Operating Income
Less: Finance Costs
Earnings before Income Tax
Less: Income Tax
346
110
236
56
333
118
215
42
(2,418)
137
(2,556)
(441)
Net Earnings 180 172 (2,114)
Source: Company files.
“Lights-On”
Activities required to “keep the lights
24. on”/operate efficiently
Spend as little as possible, consider
outsourcing
Table Stakes
Activities required to compete in
a given sector
Match competitive threshold
Differentiating Capabilities
3 to 6 differentiating capabilities
that build sustainable advantage
May spend more than competitors
SOBEY’S CASE STUDY QUESTIONS
For Case Study format : ( ± 750 words)
Title page with your name, student number, name of case study
and submitted to professor.
Summary of case study key points
25. Case study questions:
1. What are the disruptive forces in the grocery industry?
2. What specific issues is Medline facing?
3. What factors should Medline consider in turning the regional
structure into a functional
organizational structure?
4. What factors should Medline consider in reducing costs and
generating quick wins?
5. How should Sobeys get closer to its customers?
6. What should be the next steps for Sobeys?
R. Chandrasekhar wrote this case under the supervision of
Professor Andreas Schotter solely to provide material for class
discussion.
The authors do not intend to illustrate either effective or
ineffective handling of a managerial situation. The authors may
have disguised
certain names and other identifying information to protect
confidentiality.
This publication may not be transmitted, photocopied, digitized,
or otherwise reproduced in any form or by any means without
the
permission of the copyright holder. Reproduction of this
material is not covered under authorization by any reproduction
rights
organization. To order copies or request permission to
reproduce materials, contact Ivey Publishing, Ivey Business
27. Canadian Business
A Stronger Platform for Growth: 2014 Annual Report
Our Recipe for Success: 2013 Annual Report
A Stronger
Platform for Growth: 2014 Annual Report
Building a Stronger Platform for
Growth: 2015 Annual Report
Better Foods for All: 2016 Annual Report
Unlocking Our Scale
Retail Foods: The Retail Landscape of Canada