Software crash hits Sobeys hard WebPosted Thu Jan 25 19:59:38 2001

STELLARTON, NOVA SCOTIA - A technological nightmare has cost Grocery chain Sobeys Inc. millions of dollars and forced the company to issue a third-quarter profits warning.

Canada's second largest supermarket operator announced Wednesday it will take an after-tax charge of $49.9 million, or 82 cents a share, because it was forced to scrap a key software system.

Bill McEwan, Sobeys' president and CEO, said the company was dropping its SAP software and systems after two years of problems that culminated this December with a massive five-day crash. McEwan said the company took four to five weeks to fully recover from the disruption and costs associated with it will result in quarterly operating earnings "well below our previously expected results."

SAP is the biggest software company in Europe and the world's leading supplier of inter-enterprise software with more than 21,700 employees in more than 50 countries.

A spokesperson for SAP says the company has yet to receive official word from Sobeys that it's being dropped, adding senior executives have plans to meet with Sobeys executives Friday to discuss problems.

McEwan however, told a conference call that, "we have come to the conclusion that what appeared to be growing pains with the implementation of enterprise-wide system are in fact systemic problems of a more serious nature."

"The bottom line is that SAP was not going to create a sustainable system solution for this organization," he said. "We remain confident our fourth-quarter earnings will materialize as expected."

McEwan forecast Sobeys will have year-end earnings of $1.48 per share or $11.4 billion, and a net income of $90 million. After the charge, the company forecast fiscal 2001 earnings per share of about 66 cents and fourth-quarter earnings per share of about 42 cents.

McEwan, who took over the company only a few days before the disaster hit, also said a new chief information officer will be joining the company within a few weeks and plans for an IT solution are in the works.

"We have determined that there is insufficient core functionality in SAP software component of our enterprise-wide systems to effectively deal with the extremely high number of transactions in our retail operating environment," McEwan said.

The SAP software will be phased out of Sobeys' Atlantic Division and its 30 corporately owned stores in Ontario. The company's outlets in Quebec and Western Canada, the Serca national food service unit and the 379 IGA and other former Oshawa Group stores in Ontario were never fitted with the SAP system.

Sobeys has about 400 company-owned stores and 1,000 franchised outlets.

Sobeys' stock fell 13.77 per cent, or $3.25, to $20.35 on Thursday. The stock, which has moved in a yearly range of $28.25 to $16.25, had been halted before the close Wednesday pending the news.

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-- Carl Jenkins (somewherepress@aol.com), January 26, 2001

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Thanks, Carl. I dread venturing anywhere near the actual CBC site because I get lost somewhere down in its bowels, page by slow-loading page, which always makes me wonder why I went there....

-- Rachel Gibson (rgibson@hotmail.com), January 26, 2001.