Empire, parent company of Sobeys, sets new three-year growth plan

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Empire Company Ltd., the parent company of Sobeys, today unveiled Project Horizon, a new three-year strategy to increase market share and “win Canadian grocery e-commerce.”

Empire said on Wednesday that the plan builds on Project Sunrise, its three-year strategy launched at the end of fiscal 2017 to simplify its organizational structure and reduce costs. Horizon efforts include increased investments in the Sobeys store network, acceleration of online grocery services and capabilities, increased store productivity, private label expansion and usage. analytics and technologies to improve personalization.

Originally, Empire, based in Stellarton, Nova Scotia, planned to launch its new strategy in May, but the company said it decided to delay the launch so it could focus on its response plan. COVID-19 and its security measures. The Horizon project aims to generate annualized EBITDA (earnings before interest, taxes, depreciation and amortization) of an additional $ 500 million (Cdn) by the end of fiscal 2023.

“Empire now has the team, structure and vision to realize its sales and profit potential,” Empire President and CEO Michael Medline (left) said in a statement. “Even though we exceeded our Project Sunrise savings target of $ 550 million, there is still substantial value to unlock through Project Horizon. As the retail landscape in Canada continues to react and change under the seismic waves caused by the pandemic, it is now clear – more than ever – that we must be able to serve customers where, when and how they are. want to shop. We will invest in our core store business to drive growth and move much faster with Voilà [online grocery] customer distribution centers and an exciting new premium in-store solution using Ocado technology. “

For the store base, Empire said it plans to drive investment not only in physical locations through renovations and banner conversions, but also through store processes, communications, training, technology and tools to help associates better serve customers.

Empire operates its food retail business through its Sobeys subsidiary. Overall, Sobeys’ retail network includes more than 1,500 food and pharmacy stores in the 10 provinces under banners such as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy and Lawtons Drugs. As part of Project Horizon, Empire aims to continue expanding the FreshCo discount banner in Western Canada and the Farm Boy Fresh Market banner in Ontario.

Inside stores, Empire will prioritize increasing sales per square foot by leveraging the advanced analytics capabilities launched as part of Project Sunrise. Analytics are expected to improve all elements for customers, including store footprints, customer promotions and inventory. Completing category resets in Sunrise, the company said, will further enhance the customer experience by using analytics to tailor assortments to store formats and optimize product adjacencies.

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In fiscal 2021, plans call for Empire to expand Farm Boy’s footprint to eight stores in Ontario.

Over the past two years, Empire said it has seen a strong customer response to improve its positioning and private label, and that in-store brand penetration has grown faster than the industry throughout fiscal 2020. – and was further amplified during the coronavirus pandemic. . As a result, the company said it is working closely with partner vendors to determine which categories to expand and to drive private label sales through increased distribution, shelf placement and product innovation.

E-commerce is seen as a backbone for increasing market share, Empire noted. To that end, the company is accelerating plans to open two more Automated Order Fulfillment Centers (CFCs) – for a total of four in Canada – and introduces Ocado’s in-store picking technology to support its customer service. That’s it online grocery store. The in-store selection system will serve customers in areas where CFCs do not ship or are not yet built, and is expected to be piloted in Nova Scotia in late summer, followed by prior to s ‘expand to hundreds of stores across the country over the next few years.

With four Ocado CFCs, Empire said it would be able to serve about 75% of Canadian households, or about 90% of Canadians’ grocery expenses. Voila launched to customers in the Greater Toronto Area on June 22, and initial feedback has been “overwhelmingly positive,” according to the company. The service will be powered by an Ocado automated warehouse in Vaughan, Ontario.

After a delay due to COVID-19, Empire’s second CFC has resumed construction in Montreal, and the facility – which supports the Voilà home delivery service by IGA in Ottawa and cities across Quebec – is expected. enter service in early 2022. Empire has said it will speed up the construction schedule for two more CFCs in Western Canada, but the company has so far not disclosed their locations.

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The Voilà online grocery service will eventually be supported throughout Sobeys’ market area by four Customer Distribution Centers (CFCs). A CFC is operational in Vaughan, Ontario, and another is under construction in Montreal and is expected to open in 2022.

Strengthening the customer experience for in-store and online channels will require developing “best-in-class” personalization, Empire said. The company has increased its investments in analytics and technology to better identify buyer preferences and support direct and personalized communication, including more relevant promotions.

“Empire’s strategy will be implemented by our incredible team of 127,000 teammates and franchise partners from coast to coast,” said Medline. “Diversity, equity and inclusion efforts that lead to tangible social and organizational change within our business and the communities we serve will be a high priority for our team.”

The benefits of Project Horizon are expected to increase over three years, with the largest being realized in the third year, according to Empire.

Capital expenditures are expected to average approximately $ 700 million per year over the next three years, including approximately 20 new Farm Boy stores in Ontario and the conversion of 30 to 35 Safeway and Sobeys supermarkets to FreshCo stores in Western Canada.

In FY2021, capital spending is estimated to be between $ 650 million and $ 675 million, with roughly half of that going to new stores and renovations. Plans call for Empire to open 10 to 15 FreshCo stores in Western Canada and expand Farm Boy’s footprint to eight stores in Ontario. The company said it would invest around 15% of its estimated capital expenditure in advanced analytics and other technologies. The total investment in Voilà for fiscal 2021, including the Montreal CFC, is estimated at $ 65 million.

Empire said that over the next three years, the company would grow faster than its major competitors and increase its EBITDA margin by 100 basis points on a “much higher” sales basis. This in turn should generate a compound annual growth rate (CAGR) in earnings per share of at least 15%, even after the impact of investments in online grocery delivery Voila. The company said the removal of more than $ 550 million in costs through the Sunrise project increased its EBITDA margin by 145 basis points on a comparable basis, excluding the results of the pandemic, while the Adjusted EPS increased by a CAGR of 44%.

For the fourth quarter of fiscal 2020 ended May 2, Empire totaled sales of $ 7.01 billion (Canadian), up 12.7% from $ 6.22 billion a year earlier . Comparable store sales jumped 15% year over year (18% excluding fuel). Yesr sales were $ 26.59 billion, up 5.8% from $ 25.14 billion in fiscal 2019. Comparable store sales for the full year were increased by 4.6% (5.7% excluding fuel).

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