Sobeys CEO Michael Medline calls Ocado online grocery platform ‘game-changing’

Michael Medline, president and CEO of Sobeys parent Empire Co. Ltd., is bullish on the Canadian retailer’s upcoming Voilà online grocery service, powered by Ocado, and expanding Farm Boy fresh market banner.

In a call with analysts on Empire’s fiscal 2020 second-quarter results, Medline called Voilà “our game-changing e-commerce solution” and Farm Boy “a weapon for winning share in urban markets in Ontario.”

The company’s first online grocery delivery offering, Voilà by Sobeys, is slated to get under way in the greater Toronto area in spring 2020, when its customer fulfillment center (CFC) in Vaughan, Ontario, begins operation. Next up in 2021 is Voilà par IGA, a delivery service in Ottawa and major cities in Quebec that will be served by a second CFC to be built in Pointe-Claire, Montreal. The Sobeys and IGA Voilà services and the Vaughan and Montreal CFCs will use Ocado’s Smart online grocery platform.

“While most players in the industry are focused on inefficient store-pick models to fulfill their online orders, we are building automated warehouses powered by Ocado's world-leading grocery technology. We'll be able to provide customers with convenient, short delivery windows beginning early in the morning and running until late in the evening,” Medline explained in the call.

Related:Sobeys eyes an even smarter shopping cart

“This is the only e-commerce model that at scale will eventually allow us to profitably deliver an expanded assortment of groceries to over 75% of the Canadian population with only four CFCs,” he said. “While our focus is on home delivery, we can also do click-and-collect source out of the CFCs. if that's what customers want in certain areas. Although, I must add, our data and experience tell us that when given the choice customers overwhelmingly prefer delivery to home.”

The Voilà service will offer up to 39,000 products, “way more than any other grocery e-commerce business in Canada,” Medline said.

Ocado’s platform employs a centralized fulfillment model, providing a high degree of automation, accommodating a huge assortment of products and serving a wide geographical area. Compared with micro-fulfillment solutions, these facilities require much more investment, space and time to launch. But Ocado’s solution will position each CFC as a “hub” that will allow Sobeys to “get closer to the customer” as well as “build even more flexibility over time to meet customers' needs,” noted Medline.

“There is a reason that many of the best grocers in the world — including Kroger in the U.S., Casino in France, ICA in Sweden, Kohl's in Australia, Marks & Spencer and Morrisons in the U.K.; and Aeon in Japan are partners with Ocado,” he told analysts. “The reason being is that Ocado is the most advanced and continually innovative small-cube, e-commerce solution in the world. Frankly, any Plan B is just not nearly as good.”

Related:Sobeys unveils more Safeway-to-FreshCo conversions

At scale, the Voilà service will offer up to 39,000 products — “way more than any other grocery e-commerce business in Canada and 15,000 more than your average grocery store,” Medline said — and at pricing comparable to physical Sobeys and IGA stores.

“An online grocery home-delivery experience like Voilà does not exist in Canada,” he said. “We're going to grow the market. Voilà is on track to test and soft launch in the GTA in late spring. We are so confident in the Voilà solution that we have already started building our second CFC in Montreal with our partner, Crombie REIT. This CFC will serve major cities in Quebec and the Ottawa area and is expected to open in 2021.”

Meanwhile, Sobeys’ Farm Boy chain last week unveiled plans to open 10 new stores in Ontario through 2021, including five in Toronto and two in Ottawa. One of those 10 opened its doors earlier this month in Burlington. Ottawa-based Farm Boy, acquired last December, currently has 28 stores in the province.

Farm Boy plans to open 10 new stores in Ontario through 2021, which will lift its store count to 37.

The new Farm Boy locations, ranging from 12,000 to 38,000 square feet, will boost Sobeys’ presence in Ontario, where Medline said the company is “underpenetrated.”

“Farm Boy has been part of the Empire family for just about a year now and continues to deliver on its industry-leading operational and customer metrics. It is outperforming all of our expectations,” he said in the call. “The phenomenal team at Farm Boy is making progress against its plan to double the size of the business in the next five years. The Farm Boy store count will grow in a mix of urban and suburban communities, with diverse store sizes and formats to fit the needs of local customers.”

Farm Boy stores serve up an extensive selection of “farm-fresh foods” and “chef-inspired take-out meals,” along with private-label specialty products and a wide assortment of locally sourced, organic and plant-based foods, the company said.

The expansion will raise Farm Boy’s retail base to 37 stores. “And this is just the beginning. Farm Boy is in different stages of development on more than 25 new stores in Ontario, a mixture of greenfield conversion and mixed developments,” Medline said. “We intend to blanket the greater Toronto area and take market share from incumbents. In a market where we have always had low market share, Farm Boy's aggressive plan for growth is being well-supported by Empire's infrastructure and capabilities in real estate sourcing and logistics.”

In Western Canada, Sobeys is making strides with its multiyear plan to convert up to 25% of its 255 Safeway and Sobeys full-service stores — or about 65 locations — to its FreshCo discount format. Two years into the program, 10 new FreshCo stores are open (eight in British Columbia and two in Manitoba). The company expects to open eight more FreshCo conversions in British Columbia during fiscal 2020 and another four in Saskatchewan in fiscal 2021.

For the 13-week second quarter ended Nov. 2, Stellarton, Nova Scotia-based Empire saw food retail sales climb 3.6% to $6.44 billion (Canadian). Same-store sales edged up 1.2% year over year but, excluding fuel, rose 2%, the company said. First-half food retail sales totaled $13.18 billion, up 4% versus the prior-year period. Comparable-store sales gained 1.5% in the 26 weeks and, excluding gasoline sales, increased 2.2%.

Empire posted net income of $154.6 million, or 57 cents per diluted share, for the 2020 quarter compared with $103.8 million, or 38 cents per diluted share, a year earlier. Adjusted net earnings were $158 million, or 58 cents per diluted share, versus $110.4 million, or 40 cents per diluted share, in the 2019 quarter. Analysts’ consensus estimate was for second-quarter adjusted EPS of 57 cents, according to Zacks Investment Research.