Sobeys owner Empire Company Ltd. reported its first sales decrease in more than a year on Wednesday.Melissa Tait/The Globe and Mail
Grocers are preparing for a shift in shopping behaviour as more Canadians receive COVID-19 vaccines, Sobeys owner Empire Co. Ltd. said Wednesday as it reported its first sales decline in more than a year.
While sales are still up significantly over prepandemic levels, Empire reported that its fourth-quarter sales fell 1.3 per cent compared with the same period last year, to $6.9-billion. In that quarter of 2020, grocery spending surged as Canadians stocked up on food and household essentials during the early days of the pandemic.
“You know I don’t like negative numbers, but don’t think anyone expected to see a repeat of last year,” chief executive officer Michael Medline said on a conference call to discuss the results.
The Stellarton, N.S.-based company, which owns grocery chains such as Sobeys, Safeway, IGA, FreshCo and others, reported that same-store sales fell 6.1 per cent in the 13 weeks ended May 1. Same-store sales is an important metric that tracks sales growth not related to store openings or closings. Compared with the same quarter in 2019, Empire’s same-store sales were up 10.4 per cent.
Empire gained market share throughout the pandemic, Mr. Medline said, and while its share remains greater than two years ago, it saw some impact in the fourth quarter as people began to feel safer and ventured out to shop at multiple grocery banners. “But we expect to hold on to substantial market share gains as COVID subsides,” he said on the call.
Empire reported net earnings of $171.9-million, or 64 cents per share, in the fourth quarter, compared with $177.8-million or 66 cents per share in the same period in 2020.
The company increased its quarterly dividend by 15.3 per cent, to 15 cents per share.
Empire is expecting grocery sales to fall in the coming year as the vaccine rollout continues and people start spending more money at restaurants and bars.
Executives also expect shopping habits to change. During the pandemic, customers have tended to shop less frequently but buy more items during each visit and have therefore gravitated to stores that offer a larger assortment. Across the industry, that has affected sales at discount grocery stores. Empire predicted that people will begin to shop more frequently, at a wider variety of stores, but does not expect buying habits to return entirely to normal for the foreseeable future.
“While we expect the grocery industry will shift towards some prepandemic ways, we do not believe it will fully return to the way it was,” Mr. Medline said.
Empire reported $24-million in pandemic-related costs in the fourth quarter, including $9-million for bonuses for some employees in regions where government-mandated lockdowns were in effect.
Online grocery sales have also continued to grow but at a slower pace than in recent months. Empire’s e-commerce sales were up 15 per cent in the fourth quarter. The retailer launched a new e-commerce service, Voilà, last June, beginning in the Greater Toronto Area. Empire plans to launch it under its IGA banner in Quebec and Ottawa early next year and is planning to build a total of four fulfilment centres across Canada. It has also begun offering store pickup for online orders under the Voilà brand in some places and plans to expand that curbside service. The company said Wednesday that its e-commerce costs will increase in the coming year as it opens its Montreal fulfilment centre and expands in that region.
Empire is now one year into a three-year plan it calls Project Horizon, intended to keep increasing its market share and controlling costs. So far the plan has involved store renovations and expansions, improving its data analytics to manage operations and merchandising and finding efficiencies in its product sourcing. Spending on the e-commerce network offset some of the cost savings achieved through those initiatives.
The company reported $679.2-million in capital spending for the year and expects to spend roughly $765-million in the coming year as it continues renovating stores, opening new locations and investing in new analytics systems and other technology. Empire intends to continue expanding its discount FreshCo banner in Western Canada and plans to open more Farm Boy stores in Ontario.
The company also renewed its share buyback plan this week. Since last July, it has repurchased almost 5.3 million shares for $199.5-million.
For the full fiscal year ended May 1, Empire reported that sales increased 6.3 per cent to $28.3-billion. The grocery retailer’s net earnings for the year were $764.2-million, or $2.61 per share, compared with $612.8-million or $2.16 per share in the prior year.
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