People shop at a Sobeys location in Toronto, on April 3, 2020.J.P. MOCZULSKI/THE GLOBE AND MAIL
Sobeys parent company Empire Co. Ltd. is continuing to see profits surge, with people staying closer to home and cooking for themselves more often through the COVID-19 pandemic. And the company is predicting this trend will continue, even as children go back to school and offices begin opening up.
The Stellarton, N.S.-based grocery retailer reported on Thursday that net earnings grew 47 per cent in its first quarter, to $191.9-million, or 71 cents a share, compared with $130.6-million, or 48 cents a share, at the same time last year.
“It’s clear that many Canadians' food habits remain changed, and we predict they will stay changed due to the severity and length of COVID concerns,” chief executive Michael Medline said on a conference call to discuss the results Thursday.
Empire owns grocery chains including Sobeys, Safeway, Foodland, FreshCo, IGA and others.
Empire’s same-store sales growth – an important metric that tracks growth, excluding the impact of new store openings – was 8.6 per cent in the 13 weeks ended Aug. 1, or 11 per cent not including fuel sales at its locations with gas stations. Such increases are significant in the sector: At the same time last year, Empire’s same-store sales growth was 2.4 per cent not including fuel sales.
“Looking ahead, we believe same-store sales may slow down a bit further, but we see the stickiness in a good portion of the consumption that shifted from restaurants and hospitality businesses to grocery sales,” Mr. Medline said on the call.
Empire reported $7.4-billion in total sales in the first quarter, compared with $6.7-billion in the same period last year.
Canada’s largest grocers, including Empire, came under fire in June for their decision to end pandemic-related pay bonuses, which Sobeys referred to as “hero pay.” The company reported that costs related to COVID-19 increased by roughly $67-million in the first quarter, including the bonuses paid in part of the quarter, as well as cleaning and other safety measures. Now that the bonuses have ended, the company said it expects added costs to be lower, estimating $15-million to $20-million a quarter to maintain sanitizing and safety protocols.
Another impact of the pandemic has been a shift in Canadians' shopping patterns, with more people turning to e-commerce during stay-at-home orders and building an e-commerce habit. In Quebec and British Columbia, where Empire has well-established online grocery services under its IGA and Thrifty banners, online sales were nearly five times higher than usual, growing 370 per cent compared with last year.
Empire launched its new online grocery delivery service, Voilà, in the Greater Toronto Area in June. As demand continues, Empire is speeding up the construction of other Voilà distribution centres, built in partnership with British-based online grocer Ocado Group PLC. Empire will open a total of four distribution centres, which use Ocado’s robotic technology to manage inventory and fill orders faster. Empire is planning to launch Voilà under its IGA banner in Ottawa and Quebec in early 2022. In areas not covered by delivery from distribution centres, the company plans to use Ocado technology to take online orders for delivery or pickup from stores. A store-pickup service will launch in Nova Scotia in the coming weeks. The company expects to invest approximately $65-million in Voilà this fiscal year.
In the spring, Empire completed a three-year turnaround plan called Project Sunrise, which took $550-million in costs out of the business and restructured operations across the company. Empire is now embarking on a new three-year plan, Project Horizon, with the goal of increasing market share and earnings, as well as controlling costs.
The plan will include renovating stores, converting Western Sobeys and Safeway locations to discount FreshCo banners and expanding its Farm Boy stores. The company will open 10 to 15 FreshCo stores in Western Canada this year and eight new Farm Boys in Ontario. These store investments will account for about half of its projected $650-million to $675-million in capital spending in fiscal 2021.
The company also plans to invest in technology, with the aim to better analyze customer data to conduct more personalized marketing, use pricing tools to plan its product investments and reduce costs.
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