Sobeys eyes more market share after Q2 sales gains

Spurred by ongoing robust sales growth in the fiscal 2021 second quarter, Sobeys Inc. parent Empire Company Ltd. is ramping up investment in e-commerce and fast-growing supermarket banners to propel market share gains.

For the quarter ended Oct. 31, food retail sales climbed 8.4% to nearly $6.98 billion (Canadian) from $6.44 billion a year earlier, Empire reported yesterday. Same-store sales excluding fuel rose 8.7% year over year.

The Stellarton, Nova Scotia-based food and drug retailer said the sales growth reflects heightened consumer demand amid the COVID-19 crisis, increased grocery retail share and the expansion of its FreshCo value supermarket chain in Western Canada, partially offset by lower fuel sales during the pandemic and temporary closures of stores converting to the FreshCo format.

At the bottom line in the second quarter, Empire totaled net earnings of $161.4 million, or 60 cents per diluted share, compared with $154.6 million, or 57 cents per diluted share, a year ago. Analysts, on average, had forecast adjusted earnings per share of 64 cents, with estimates ranging from 62 cents to 70 cents, according to Refinitiv/Thomson Reuters.

“We have a very strong team in place, which is running our business better than ever before. We are highly confident that we will sustain our success as the pandemic subsides,” Empire President and CEO Michael Medline told analysts in a conference call on Thursday.

Related:Sobeys goes live with curbside in Nova Scotia

The third Ocado CFC for the Voilà online grocery service will be located in Calgary, Alberta.

“When we spoke in September, we said that for same-store sales excluding fuel, we’re sticking with an average range of 8% to 10% [growth]. In the last month of Q2, we saw same-store sales accelerate, and we ended the quarter at 8.7%. We saw trips slowly increase through the quarter, and while basket sizes remained high they were slightly less than last quarter. Pharmacy remained stable, and while fuel continues to be impacted by consumption, we see gradual improvement,” he explained. “We are now halfway through our third quarter. During the first five weeks of Q3, we have seen same-store sales excluding fuel continue to accelerate. For the quarter to date, ending last week, our same-store sales have averaged 11% [growth].”

E-commerce sales jumped by 241% in the second quarter, led by the expansion of the Voilà by Sobeys online grocery delivery service. Empire also generates online grocery sales in Quebec through IGA.net and in British Columbia via Thrifty Foods.

Launched in June in the greater Toronto area, Voilà is powered by an Ocado automated customer fulfillment center (CFC) in Vaughan, Ontario, which recently extended its service area to include Barrie and Guelph. Customers choose from a selection of about 16,500 products, and new items are being added daily.

Related:Food retail sales remain strong at Sobeys in first quarter

“While initial sales and penetration have in part been bolstered by COVID, where we have truly been impressed is the customer satisfaction and our operational metrics,” Medline said. “To date, our weekly on-time delivery score is 98.6%, beating our aggressive target of 95%, and our fulfillment percent of products ordered that are delivered is 99.6%, exceeding even our 98% target.”

Plans call for eight Farm Boy fresh market stores to open in calendar 2021.

Voilà’s has earned a Net Promoter score of 87%, topping the industry best-in-class target score of 70% to 87%, Medline noted. “We’re seeing extremely high customer satisfaction and loyalty. This, along with positive word-of-mouth referrals and very high repeat rates, is translating to strong order volume growth,” he said. “Early in Q3, we are seeing continued compounded weekly growth as new customers discover Voilà.” More than 100 Voilà delivery vehicles are now on the road, reaching approximately 85% of the geography that the Vaughan CFC will ultimately serve.

Empire is expediting plans to build three more CFCs. They include a second CFC in Montreal to support the Voilà par IGA home delivery service in Ottawa and cities in Quebec, which is expected to go into operation in early 2022. Two more CFCs are slated to be constructed in Western Canada, and Empire announced yesterday that the third CFC will be located in Calgary, Alberta. Serving the majority of Alberta, the Calgary CFC will be built by and leased from real estate partner Crombie REIT and is expected to deliver to customers in 2023. With the four CFCs, Empire expects to reach about 75% of Canadian households.

Also, in mid-September, Empire launched Voilà Curbside Pickup online grocery service at three stores in Nova Scotia and plans to expand it to hundreds of stores nationwide over the next few years. The micro-fulfillment service uses store-pick technology from Ocado.

On the brick-and-mortar side, Empire yesterday named Stittsville, Ontario, as the next location of its Ottawa-based Farm Boy fresh market banner. The new Farm Boy is converting from a Sobeys supermarket, which will close for renovation in the fiscal 2021 fourth quarter and reopen under the new banner in the fiscal 2022 third quarter. With the announcement, Empire has now confirmed 42 Farm Boy locations in Ontario, including 34 now operating and eight to open in calendar 2021.

“After the holidays, the Farm Boy team will open two more stores in January at Front and Bathurst in Toronto and in Waterloo,” Medline said in the call. “Front and Bathurst will have expanded grocery and hot food offerings in 38,000 square feet. Another conversion and a new build are slated to open early spring, for a total of eight store openings in one fiscal year, a historic achievement for Farm Boy management.”

Empire said it's on track to open 10 to 15 FreshCo value grocery stores in fiscal 2021.

Plans call for Empire to remodel about 30% of its store network over the course of Project Horizon, a new three-year strategic plan to “win Canadian grocery e-commerce” and boost market share.

“This quarter, we renovated 18 locations across our network,” said Medline. “We continue to develop our network of FreshCo stores to achieve critical mass in Western Canada. There are now 22 FreshCo stores open and operating in the west and eight in different stages of development.”

In December 2017, Empire unveiled plans to convert underperforming Safeway and Sobeys supermarkets in Western Canada — amounting to about 25% of the banners’ 255 locations in the region — to FreshCo outlets over the following five years. The company has now confirmed 30 of the roughly 65 locations in Western Canada and is on track to open 10 to 15 FreshCo stores in fiscal 2021. Of the 30 confirmed FreshCo stores, 22 stores are in operation, six are slated to open in fiscal 2021 and two more are due to open in fiscal 2022.

“We track every renovation so we can adjust and learn constantly and so far we are very pleased,” according to Medline. “Our renovation program is meeting its financial and strategic objectives.”

Overall, Empire’s food retail network, operated via its Sobeys subsidiary, 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.