Empire gains traction on turnaround as competition heats up
Sobeys owner Empire Co. is facing tougher industry competition and industry concerns about grocery e-commerce just as its turnaround begins to show signs of traction.
The owner of banners including Safeway, Sobeys, FreshCo and IGA reported higher sales and doubled net earnings in the third quarter as its shares rose more than four per cent Wednesday on the news.
But same-store sales, a key measure of retail performance that strips out the effects of square footage changes, rose only slightly, by 1.1 per cent excluding gas.
Sobeys’s rivals engaged in more aggressive flyer promotions during the 13-week period ended Feb. 3 and rival Loblaw Cos. Ltd. began signing up customers for a free $25 gift card for those who bought bread from the retailer during an industrywide price-fixing scheme over 14 years.
“We have seen more promotional activity from our largest competitors in Ontario and the West than we have seen in the previous 12 months,” chief executive Michael Medline told analysts on a call to discuss results. Price-cutting was more notable in the Ontario discount division where Empire’s FreshCo battles No Frills, Walmart and Food Basics, he added.
In the past, Medline has denied wrongdoing by Sobeys in the bread price-fixing scheme, but he did not discuss the pricefixing probe during the investor call. Medline said Sobeys prefers to focus on margin improvement than “empty calorie” same-store sales, which are most easily achieved in the cutthroat industry through steep price cuts.
Last year, Sobeys began a three-year restructuring regime to achieve $500 million in annual cost savings by 2020.It continues four years after its botched integration of the western Canadian Safeway chain that led to departing customers, spiralling sales and $2.9 billion in writedowns.
Medline told analysts Wednesday that Sobeys will regain its lost market share when its business overhaul takes hold: the rollout of its FreshCo discount banner out in the West, improvements in merchandising and the extension of its e-commerce business announced in January in partnership with U.K.-based online grocer Ocado.