Shoppers at a Sobeys grocery store in Toronto.Melissa Tait/The Globe and Mail
The chief executive of Canada’s second-largest grocery chain expressed frustration on Thursday over accusations of “greedflation” in the industry, referring to claims that retailers are profiting off inflation as “reckless and incendiary attacks” that ignore factors driving improvements in the bottom line.
“Quite frankly, I am tired of these armchair quarterbacks who make little effort to understand even the basics of our business, but who are comfortable sitting on the sidelines pontificating about how Canadian companies are reaping unreasonable profits on the back of inflation,” Empire Co. Ltd. EMP-A-T CEO Michael Medline said during his remarks at the company’s annual meeting. “This is absolutely not true.”
Mr. Medline pointed to efforts the company has made over the past six years to cut costs, simplify operations and find efficiencies in the business. Empire is now in its final year of a three-year plan called Project Horizon, which aims to add $500-million in annualized earnings before interest, taxes, depreciation and amortization (EBITDA). That goal is still on track, the company reported on Thursday. As part of the project, Empire has been expanding and renovating stores, investing in e-commerce and a new loyalty program, engaging in further cost-cutting and improving operations and merchandising.
“Our margin improvements are a direct reflection of investing in the operational excellence of our stores, and our increasingly sophisticated use of data,” he said.
Mr. Medline made the remarks after Empire reported first-quarter earnings on Thursday. Food inflation and increasing sales of fuel at gas-station locations contributed to higher sales in the quarter, but profits remained flat.
The parent company of grocery chains including Sobeys and Safeway has been expanding its discount FreshCo banner in Western Canada, which also contributed to higher sales as Canadians faced with inflationary pressures are changing their shopping habits. The Stellarton, N.S.-based retailer reported that first-quarter sales rose by 4.1 per cent to $7.9-billion.
Higher supply chain costs affected Empire’s profit margins in the quarter, as did a change in the sales mix resulting from the shifts in people’s buying behaviours. In recent quarters, Empire has noted that customers have responded to rising food prices by visiting its discount stores more often, and by “trading down” to buy cheaper cuts of meat and private-label products in place of name brands.
However, Mr. Medline said that the company’s full-service grocery stores are managing to hold on to customers even as some shift to discount banners, partly through the strength of Empire’s cheaper private-label brands and by advertising promotions to increasingly price-sensitive shoppers. On a conference call with analysts to discuss the results, Mr. Medline also pointed to signs that inflationary pressures may be beginning to ease, following an intense period of cost increases earlier this year.
“While it is too early to definitively say that inflation has peaked, we are seeing some encouraging signs, including the fact that the number and rate of cost increases from our suppliers is decreasing,” Mr. Medline said.
Net earnings were roughly flat at $187.5-million or 71 cents a share in the 13 weeks ended Aug. 6, compared to $188.5-million or 70 cents a share in the same period last year.
Empire has been investing in expanding its e-commerce operations under the Voilà brand, which first launched in the Greater Toronto Area and began delivering from a second fulfilment centre in Montreal in March. The company plans to open fulfilment centres in Calgary and Vancouver in the coming years.
But while e-commerce sales spiked significantly during the pandemic as lockdowns pushed shoppers to order more of their groceries online, retailers have seen those sales drop off as restrictions ease. In a statement on Thursday, Empire noted that online sales across the industry were lower than expected in the first quarter. Empire’s own online sales fell by 21 per cent in the quarter compared with the same period last year.
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