Sobeys CEO: ‘Our turnaround is now complete’

Sobeys Inc. parent Empire Co. Ltd. likes its current position in the Canadian grocery retail arena, having successfully capped off two straight three-year growth plans, according to President and CEO Michael Medline.

In reporting fiscal 2023 results last week, Empire checked off Project Horizon, a three-year strategic plan to ramp up market share and boost the food and drug retailer’s omnichannel presence. Horizon dovetailed with Project Sunrise, a three-year program launched in late fiscal 2017 to simplify the company’s organizational structure and lower costs. Efforts under Horizon included increased investment in the Sobeys store network, acceleration of online grocery services and capabilities, improved store productivity, private-label expansion, and the use of analytics and technology to enhance personalization.

“Our turnaround is now complete. Through Project Sunrise and Horizon, we have delivered over $1 billion (Canadian) in EBITDA improvement since the end of fiscal 2017,” Medline told analysts on Thursday in a conference call. “We now have the tools, capabilities, team and assets needed to compete and win. We will now transition to our next chapter and focus on consistent and sustained execution of results.” (Call transcript provided by AlphaSense.)

Noting the achievements under Horizon, Medline cited the development of deeper analytical capabilities and a promotional optimization tool; a stronger own-brand portfolio, including over 1,000 new items; an upgraded store network; the expansion of the chains FreshCo in Western Canada and Farm Boy and Longo’s in Ontario; the launch of Voilà online grocery delivery; and the national rollout of the new Scene loyalty program, now with 13 million-plus members.

Empire/Sobeys CEO Michael Medline. / Photo courtesy of Empire Co. Ltd.

The Voilà initiative included the construction of Ocado-automated customer fulfillment centers (CFCs) in Toronto, Montreal and Calgary, Alberta—all now operational—with a fourth slated to get under way in Vancouver, British Columbia, in calendar 2025.

“As you know, this was the second three-year transformation we’ve completed. Over the last six years, we’ve shared all of the details of our many strategic initiatives with you and delivered each of them on time and on target—or, in many cases, better than target. We told you what we are going to do, and we’ve done it,” Medline said in the call.

“Since the start of Project Sunrise in fiscal 2018, we have improved almost 50% of our [brick-and-mortar] network through renovations and new stores, and we’ve generated a compound annual growth rate of 26% in adjusted EPS, leading the industry,” he explained. “I said it after Sunrise and I’m pleased to say it again today: There are very few Canadian retailers that have executed a transformation of this magnitude with this level of success.”

Market trends also are becoming more favorable, notably a letup in food price inflation, according to Medline.

The Canadian grocer has seen success converting Sobeys and Safeway banner stores in Western Canada to the value-focused FreshCo format. / Photo: Shutterstock

“For several quarters, we have said that as inflation abates, Empire will be well-positioned, and in Q4, we began to see early indications of this reflected in our sales performance and in our tonnage,” he said. “We are also continuing to see traffic in our stores improve, with higher transaction counts in Q4 across all regions. Although basket sizes are still lower than last year, we are seeing this trend improve. Our category managers continue to work in collaboration with our supplier partners and to leverage the promotional optimization tool we built to provide value to customers. And we are seeing higher promotional penetration than last year as customers stretch their dollars.”

Sobeys also is extending more savings to shoppers by expanding its value-size products offering, holding Scene member days and launching a new program called “Serving Up Value” that offers budget-friendly recipes using the grocer’s Compliments-brand products, he added.

Going forward, Empire aims to grow adjusted earnings per share at an average annual rate of 8% to 11% over the long term, through operating earnings growth and share repurchases, Medline and Chief Financial Officer Matt Reindel reported.

Sobeys' enhanced private-label roster includes its mainline Compliments food and nonfood brand. / Photo: Shutterstock

“To achieve this growth, we will focus on priorities such as an even greater emphasis on our store network, including our supply chain, an enhanced focus on digital capabilities and data, and a continued drive for efficiency and cost control,” said Medline. “We will do this by continuing to advance our key initiatives, including Scene , store renovations, own brands, space productivity and others, while also beginning new strategic programs that support our stores and enhance the customer experience.”

Reindel also cited plans for new private-brand items under FreshCo’s Chalo! brand plus new SKUs aligned with the company’s organic and green initiatives. He said capital expenditures totaled $797 million in fiscal 2023 and are pegged at $775 million for fiscal 2024.

“As in prior years, we expect about half of this capital to be allocated to renovations and new stores,” Reindel told analysts. “Over the next three years, we plan to renovate approximately 20% to 25% of the network, and about 50% of the capital will be allocated to sustainability initiatives, such as refrigeration system upgrades, HVAC system upgrades and other efficiency initiatives.”

Overall, Empire’s Sobeys Inc. food retail network encompasses more than 1,900 food, drug and convenience stores in all 10 provinces under banners such banners as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy and Lawtons Drugs. The retailer also operates over 350 retail fuel stations.