Sobeys parent Empire enjoys sales boost, but pandemic effect starting to moderate

The Nova Scotia supermarket giant that owns Sobeys and Safeway made historic profits this summer, amid an unprecedented rise in home cooking and online shopping — but those habits might be fading as the country crawls closer to some semblance of normal.

Empire Co. Ltd.’s net earnings were $191.9 million, or 71 cents per share in its first quarter of fiscal 2021, which ended on Aug. 1 — a 46.9 per cent increase compared to last year. The earnings per share were “the highest in our company’s history,” Empire chief executive Michael Medline boasted on an call with investors on Thursday.

Empire, like other major grocers, has benefited from a massive change in eating and shopping habits since the onset of the pandemic. Among the most important changes has been a shift to ordering groceries online, with once-skeptical Canadian consumers trying it in droves.

That surge in demand has intensified the battle for e-commerce dominance in Canadian grocery, with most major supermarkets rapidly expanding their delivery offerings. And on Thursday, Medline vowed to win that fight.

In June, Empire bumped up the launch of its Voilà grocery delivery service in the Toronto area, which uses robots to assemble orders in a new, central warehouse north of the city. Using that model, from the U.K. online supermarket Ocado, has given Empire a “huge competitive advantage” over its rivals. “Mammoth,” Medline said.

“It’s best in the market. The customer service is second to none. And, well, it’s really cool.”

Empire was reluctant to give details about Voilà’s sales performance in Toronto thus far, except to say that metrics including customer retention, order size and frequency were ahead or in line with expectations. The Voilà investment had a dilutive impact of five cents on the earnings per share, with a total impact of 20 cents after tax in fiscal 2021.

The company plans to open three more automated warehouses, which it says will eventually serve 75 per cent of Canadian households that represent 90 per cent of the total grocery spend, starting with a Montreal facility opening in 2022. For areas that are out of reach of a warehouse, Voilà is testing a curbside pick-up model in Nova Scotia.

Thursday ’s earnings release also provided an updated understanding of Canadian shopping habits mid-pandemic.

At the outset this spring, consumers ate almost exclusively at home and preferred one big shop over a few little ones throughout the week. Those trends pushed up the average “basket size” in grocery stores, tamped down average foot traffic and boosted sales at big, full-service stores at the expense of discounters.

Essentially, the grocery industry siphoned away much of the restaurant industry’s sales — and despite schools and businesses reopening across the country, grocers are hoping to hang on to some of that business.

“It’s clear that many Canadians’ food habits remain changed, and we predict will stay changed, due to severity and length of COVID concerns,” Medline said.

But Empire’s earnings report showed the boost it was getting from the pandemic is starting to wear off slightly.

The retail chain’s same store sales — a key retail metric — have been slowly levelling out after huge gains in the spring and summer. In the quarter, same store sales grew by 11 per cent excluding fuel, up from 2.4 per cent a year earlier. But more recently, in the 14 weeks ended Sept. 5, same store sales have hovered between eight and 10 per cent.

“Looking ahead, we believe same store sales may slow down a bit further,” Medline said, adding that he expects some business that shifted from the hospitality industry to stick in the grocery sector. “Grocery sales are still significantly higher than historic levels.”

Empire’s food sales were $7.4 billion, up $610 million compared to last year.