Empire to expand private label, open more Farm Boys to grow earnings

Empire Ltd., the parent company of the Sobeys grocery chain, unveiled a plan to increase earnings by $500 million over the next three years through store renovations, grocery e-commerce and expanding its private label brand.

The Nova Scotia-based company (EMP-A.TO) said Wednesday it will spend $2.1 billion over three years to support the growth strategy dubbed “Project Horizon.” The plan is targeting a $500 million increase in annual earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of 2023. The strategy was initially supposed to be released in May, but Empire was forced to delay the launch because of the COVID-19 pandemic.

Empire chief executive officer Michael Medline said in an interview with Yahoo Finance Canada that while most of the strategy did not change, the COVID-19 pandemic did force the team to go back to the drawing board for some ideas.

“We made a few decisions to strengthen certain parts of our business, including accelerating e-commerce and private label, that we knew were important to our customers during COVID-19 and will continue to be important going forward,” Medline said.

“But the heart of the strategy remains the same.”

Empire’s stock was up nearly 2 per cent at the market close on Wednesday, trading at $33.53 on the Toronto Stock Exchange.

Empire plans on growing its market share by investing in its store network, scaling up grocery e-commerce, growing its private label and increasing its Farm Boy and FreshCo footprint.

Over the next three years, the company will convert between 30 and 35 conventional stores in Western Canada into FreshCo’s and add approximately 20 new Farm Boy locations in Ontario. It will also renovate existing stores, something many companies – including Walmart – are doing in light of the pandemic.

“What customers will be seeing is a better flow, cleaner look, more modern with easier checkout lanes,” Medline said.

“Some of it is going to be focused on innovation, but some of it will just be purely a better shopping experience.”

The company is also banking on growth from its newly-launched e-commerce business. Sobeys launched a new grocery delivery service in the Greater Toronto Area last month that will bring groceries from a high-tech warehouse to customers within an hour. Medline said the early response from customers using the new online delivery service has been “phenomenal.”

The investment in e-commerce is one that is Doug Stephens, founder and chief executive officer of Retail Prophet, said is long overdue.

“It’s certainly something that Sobeys should have already been doing,” Stephens said, referring to Project Horizon as “Project Wakeup Call.”

“The entire Canadian grocery industry was taken completely aback by the devastation of COVID-19 and found themselves remarkably unprepared for what they had to adapt to and the flood of customers shopping online.”

Stephens also said Empire will have to take market share away from its competitors in order to hit their earnings target.

“That is going to mean selling everything your customers want, exactly where they want to buy it,” he said.

“Grocery stores have an opportunity to catch up now and create better buying experiences for their customers.”

Empire also plans on boosting sales of its private label brand by increasing distribution, improving shelf placement and product innovation. The company said penetration of its private label brands, such as Sobeys’ Compliments, has been growing faster than the industry rate for the last year and has seen further growth through the pandemic.

“It’s time we highlight our private label,” Medline said.

“We see opportunities to extend our reach with Compliments, and so over the course of the next 12 to 18 months, we’ll be able to give our customers more choice and tell our story more.”

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