A Sobeys location in New Minas, N.S., on Jan. 7.Meagan Hancock/The Globe and Mail
The chief executive officer of Sobeys owner Empire Co. Ltd. EMP-A-T has a message for shoppers: Our grocery shelves are better stocked than the other guys.
While Empire CEO Michael Medline did not mention rival Loblaw Cos. Ltd. by name, he made his comments after a dispute recently became public between Loblaw and potato-chip manufacturer Frito-Lay, shedding light on the tense negotiations between product suppliers and grocery retailers in an inflationary environment.
The suppliers that stock grocers’ shelves are seeing costs go up for labour, transportation, raw materials and packaging – leading many to approach the grocers in recent months to ask for price increases. In late February Frito-Lay cut off shipments to Loblaw-owned stores, after negotiations broke down.
“We have continued to keep our shelves stocked better than the market average over the last 13 tumultuous weeks, as we have through most of the pandemic,” Mr. Medline said on Thursday during a conference call with analysts to discuss the company’s third-quarter results. He cited an industry report that tracks on-shelf availability, and said Empire’s stores provide better product availability.
Mr. Medline acknowledged that, like other retailers, Empire is seeing an unprecedented number of price-increase requests.
“We’ve never seen anything in our careers to match it,” he said, adding that in many cases the suppliers’ requests are justifiable, but that the retailer continues to negotiate for competitive pricing at its stores.
General inflation has reached a 30-year high in Canada, and grocery prices were up 6.5 per cent in January, according to Statistics Canada. Canadian shoppers are seeing the cost go up for products including fresh fruit, meat and bakery items.
This is causing shoppers to be more sensitive to prices, seeking out out value-pack sizes, switching from name brands to private-label products, and choosing lower-priced proteins.
“Our owned brand [product line] is on fire right now,” chief operating officer Pierre St-Laurent said on the call.
Food inflation has also contributed to higher overall sales, which grew by 5 per cent to $7.38-billion in the third quarter compared to the same period in the prior year. In addition to inflation, other contributors to sales growth included higher fuel sales, store expansions in Ontario and Western Canada, and the addition of the Longo’s grocery chain and its e-commerce service Grocery Gateway, which the company acquired a year ago.
Empire reported that its profit jumped by 15.4 per cent in the third quarter, even as grocery shoppers are changing their behaviours compared to unusually high demand in 2021.
Empire, which owns grocery banners including Sobeys, Safeway, FreshCo and Farm Boy, reported lower sales volumes in the quarter as consumer habits have shifted. While demand for groceries remains higher than it was before the pandemic – including during the Omicron wave of the virus that affected buying behaviour in late 2021 – grocery retailers have been reporting that eat-at-home trends are changing compared to the height of restrictions related to COVID-19.
Same-store sales – an important metric that tracks sales not affected by new store openings or closings – fell by 1.7 per cent, excluding fuel sales at the company’s gas stations. The Stellarton, N.S.-based retailer forecast that same-store sales will continue to fall in 2022 compared to last year. Same-store sales in the quarter were up 8.3 per cent compared to the same period before COVID, in 2020. Empire’s e-commerce sales grew by 17 per cent in the quarter, with the addition of Grocery Gateway and the growth of delivery service Voilà.
At the same time, net earnings grew significantly in the 13 weeks ended Jan. 29, to $203.4-million or 77 cents a share, compared to $176.3-million or 66 cents in the same period the prior year.
Empire has projected its earnings to be higher this year than they were in 2021, which executives said is owing to improvements in the company’s operations.
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