Empire Company Ltd., the parent of Sobeys, today unveiled Project Horizon, a new three-year strategy to boost market share and “win Canadian grocery e-commerce.”
Empire said Wednesday that the plan builds on Project Sunrise, its three-year strategy launched in late fiscal 2017 to simplify its organizational structure and lower costs. Efforts under Horizon include increased investment in the Sobeys store network, acceleration of online grocery services and capabilities, improved store productivity, private-label expansion, and use of analytics and technology to enhance personalization.
Originally, Stellarton, Nova Scotia-based Empire planned to kick off its new strategy in May, but the company said it decided to delay the launch so it could focus on its COVID-19 response plan and safety measures. Project Horizon aims to deliver an incremental $500 million (Canadian) in annualized EBITDA (earnings before interest, taxes, depreciation and amortization) by the end of fiscal 2023.
“Empire now has the team, the structure and the vision to achieve its sales and earnings 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 shift under the seismic waves caused by the pandemic, it is clear now — more than ever — that we must be able to serve customers where, when and how they want to shop. We will invest in our core store business to drive growth and will move much faster with Voilà [online grocery] customer fulfillment centers and a new, exciting store-pick solution, using Ocado technology.”
For the store base, Empire said it plans to spur investment not just in physical locations via remodels and banner conversions, but also through store processes, communications, training, technology and tools to help associates better serve customers.
Empire operates its food retailing business through subsidiary Sobeys. Overall, Sobeys’ retail network includes more than 1,500 food and drug stores in all 10 provinces under banners such as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy and Lawtons Drugs. Going forward under Project Horizon, Empire aims to continue its expansion of the FreshCo discount banner in Western Canada and the Farm Boy fresh market banner in Ontario.
Inside stores, Empire will prioritize higher of sales per square foot by leveraging advanced analytics capabilities begun in Project Sunrise. Analytics are expected to drive improvements in all customer-facing elements, including store footprints, customer promotions and in-stocks. The completion of category resets in Sunrise, the company said, will enable to further enhancements of customer experience by employing analytics to tailor assortments to store formats and optimize product adjacencies.
Over the past two years, Empire said it has seen a strong customer response to improved its private-label positioning and branding, and store-brand penetration has grown faster than the industry for all of fiscal 2020 — and was further amplified during the coronavirus pandemic. As a result, the company said it’s working closely with supplier partners to determine which categories to expand and to boost private-brand sales through increased distribution, shelf placement and product innovation.
E-commerce is seen as a linchpin for augmenting market share, Empire noted. To that end, the company is expediting plans to open two more automated customer fulfillment centers (CFCs) — for a total of four across Canada — and introduce Ocado’s store-pick technology to support its Voilà online grocery service. The store-pick system will serve customers in areas where the CFCs don’t deliver, or aren’t yet built, and is slated to be piloted in Nova Scotia at the end of the summer, followed by before expanding to hundreds of stores across the country over the next few years.
With four Ocado CFCs, Empire said it will be able to serve about 75% of Canadian households, or approximately 90% of Canadians’ grocery spend. Voilà launched to customers in the greater Toronto area on June 22, and early feedback has been “extremely 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 — supporting the Voilà par IGA home delivery service in Ottawa and cities in Quebec — is expected to go into operation in early 2022. Empire said it will accelerate the timing to build two more CFCs in Western Canada, but the company so far hasn’t disclosed their locations.
Bolstering the customer experience for both in-store and online channels will be the development of “best-in-class” personalization, Empire said. The company has upped investment in analytics and technology to better identify shopper preferences and support direct, personalized communication, include more relevant promotions.
“Empire’s strategy will be delivered by our incredible team of 127,000 teammates and franchisee partners from coast-to-coast,” Medline stated. “Diversity, equity and inclusion efforts that drive tangible social and organizational change within our company and the communities we serve will be an important priority to our team.”
Project Horizon’s benefits are expected to ramp up over three years, with the largest benefits realized in year three, according to Empire.
Capital expenditures are projected to average about $700 million annually 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 fiscal 2021, capital outlays are pegged at $650 million to $675 million, with roughly half of those funds earmarked for new stores and remodels. Plans call for Empire to open 10 to 15 FreshCo stores in Western Canada and expand the Farm Boy footprint by eight stores in Ontario. The company said it will invest about 15% of its estimated capital spending on advanced analytics and other technology. The total investment in Voilà for fiscal 2021, including the Montreal CFC, is forecast at $65 million.
Empire said that, over the next three years, the company grow faster than key competitors and expand its EBITDA margin by 100 basis points on a “much higher” sales base. That, in turn, is expected to generate a compound annual growth rate (CAGR) in earnings per share of at least 15%, even after the impact of investments in Voilà online grocery delivery. The company said the removal of more than $550 million in costs through Project Sunrise boosted its EBITDA margin by 145 basis points on a comparable basis, excluding results of the pandemic, while adjusted EPS rose by a CAGR of 44%.
For the fiscal 2020 fourth quarter ended May 2, Empire totaled sales of $7.01 billion (Canadian), up 12.7% from $6.22 billion a year earlier. Same-store sales jumped 15% year over year (18% excluding fuel). Full-year sales came in at $26.59 billion, up 5.8% from $25.14 billion in fiscal 2019. Comparable-store sales for the full year rose 4.6% overall (5.7% excluding fuel).