Cleaned up in aisle five
Medline returned grocery powerhouse Sobeys back to health, now CEO aims to tackle e-commerce
The quick and easy criticism of the grocery industry is that the Big Three — Loblaw Cos. Ltd., Empire Co. Ltd. and Metro Inc. — tend to move in lockstep with one another. Raise frontline worker salaries by two bucks an hour in March. Check. Drop said pandemic bonus pay in June within a few hours of each other. Check. E-commerce offering here, e-commerce offering there. Check.
But Michael Medline blew that out of the water in just a few minutes while speaking at an Empire Club of Canada virtual event in October. He called new supplier fees implemented by Loblaw and Walmart Canada to pay for their own infrastructure upgrades “repugnant” and “hard to believe.” He then became the first grocery exec to agree that a code of conduct between food sellers and suppliers was needed.
“This is the worst relationship I’ve ever seen in my couple of decades in retail,” he told the audience.
Medline has also had to deal with criticism over the industry’s handling of pandemic bonus pay, raising the company’s dividend amid rising revenues, and all the extra attention being paid since grocers were one of the few to enjoy increased sales after COVID-19 forced lockdowns.
Medline didn’t come of age in the grocery industry. He joined Stellarton’s Empire after a long career at Canadian Tire Corp. Ltd., including a stint as CEO from 2014 to 2016, before he was unceremoniously replaced by the previous CEO and then chairman Stephen Wetmore.
SKEPTICISM
That gives Medline a different perspective on the grocery business, one that was likely needed when he arrived at Empire in January 2017, since it was still struggling mightily to digest its $5.8-billion acquisition of Canada Safeway Ltd. four years earlier. At the time, the decision to hire Medline was treated a bit skeptically, given his lack of grocery experience.
“I remember reading some of that and I was not surprised at all, because people always think that if you’re in automobiles, you should stay in automobiles. But 90 to 95 per cent of retail is retail,” Medline says.
“You can take learnings from different experiences and be able to apply them and do pretty well. The first talk I gave was my first townhall and it was on my first day. And I just said upfront that I don't come from the grocery business. But I don't think our biggest problem is when to bring out the raspberries and the strawberries. If we have that issue then we're in bigger trouble than I thought.”
Though there was an interim CEO, Medline effectively replaced Marc Poulin, another longtime grocery executive who was never able to dig Empire out of the hole it dug for itself when it bought Safeway. Results tanked, debt rose and debt-rating agency DBRS was about to cut the company's rating to BB (high) from BBB (low) in March 2017.
PROJECT SUNRISE
Empire reported a $2.13-billion loss for fiscal 2016, and had taken third- and fourth-quarter impairment charges that were the equivalent of half the Safeway purchase price. Sales had fallen 2.1 per cent in the second quarter of 2017 and same-store sales fell 2.6 per cent, excluding fuel.
Medline quickly got to work, shuffling management and cutting staff while launching a three-year, $500-million cost-cutting plan called Project Sunrise in May 2017. That November, 800 office jobs were eliminated. But aside from costs, Medline says the regions weren't co-ordinating and weren't taking advantage of the expertise on staff. On the plus side, he adds, the company had locations in most parts of the country.
“The bones of the company were really strong, in my opinion,” he says.
“The biggest thing we had to do was become a national company. A company is aimless without a strategy. If everyone doesn't know what you're aiming at, you can't make decisions, you can't do things.”
Project Sunrise seems to have succeeded. Empire posted net earnings of $191.9 million on revenue of $7.35 billion in its first quarter of fiscal 2021, compared to $130.6 million and $6.74 billion a year earlier. Medline also launched a new three-year strategy, Project Horizon, focusing on growth and accelerating the company's ecommerce efforts, which began with the launch of its Voilà delivery platform in spring, initially in the Greater Toronto Area.
Loblaw was ahead of both its major competitors in ecommerce, but Medline said Empire's $1-billion investment in infrastructure and 2018 deal to bring in U.k.-based Ocado Group's full scope of online ordering, fulfilment automation and delivery services will pan out in its favour.
“One of my biggest concerns in joining the company was that we not be caught flatfooted on e-commerce,” he says.
“If we hadn't made the deal with Ocado to have the best technology customer experience, I'd be very worried. I shudder to think if we hadn't done the Ocado deal. It's the only thing in the business that I considered, once I knew about it, we had to have.”
INVESTMENT
Medline says having dedicated customer fulfilment centres — or, dark stores, as they're called in the industry — for ecommerce works better than the store-pick model some other grocers use, though it is certainly a much bigger upfront investment. He doesn't think the store-pick model is customer friendly and it's hard to scale, which makes it harder to make money. Part of Project Horizon is to expand the Voilà service to other parts of the country, which means building other fulfilment centres.
Building such centres means taking a short-term hit for longer-term gain, something Medline says also applies to new technologies, of which ecommerce is just one. Empire is also testing smart carts, instore vertical farming and other innovations, some related to COVID-19, some related to just having a better store, pandemic or not. The store, he says, is more important than ever, despite the rise of e-commerce.
“A lot of companies are so fixated on growing their ecommerce business and a few other things, even the marketing side, they forget that most of the customer experience is in the store,” he says.
“And if you're not careful, these stores can get aged very quickly and not be up to speed.”
One of the things Medline is most excited about is optimizing space productivity.
“We've now got, seriously, literally billions of pieces of data. No human being could figure all the data on how people like to shop,” he says.
“But now we have a team that's able to look at all that data, and, as part of the big initiative, be able to lay out our stores better and build better stores based on that data analytics.”
SUPPLIER RELATIONSHIPS
Ultimately, such information should let Medline and his team make better decisions and better serve customers. He says the company's brand scores with customers rose during the pandemic, but he still worries about the industry's relationship with its suppliers.
“The relationship between the retailers and the supplier partners is more adversarial than I think is necessary,” he says.
“That still bothers me.” Buying the Farm Boy chain in southern Ontario for $800 million in September 2018 also brought in some new customer-facing skills, as well as expertise in private-label products and produce. Empire's botched Safeway acquisition didn't scare Medline. Farm Boy had 26 stores at the time and has since added five, with plans to add seven through 2021.
Medline is all too aware that some new challenge will rise up. He says he and his teammates are ready, just as they were during the early days of the pandemic.
“One of the key learnings during COVID, and I've always believed this, is that in business, you've got to move lightning fast, and you've got to move without 100 per cent of the information a lot of the time,” he says.
“If you wait for 100 per cent of the information, you're going to be waiting a long time.”