Sobeys to Acquire Majority Share of Longo’s

What began as a secret meeting between two grocery executives on a bench in Toronto’s financial district to discuss navigating a hypercompetitive grocery market in a pandemic has led to today’s announcement that Empire Co. Ltd., the holding company for Canada’s second-largest national grocery chain Sobeys, has reached an agreement to acquire 51% of Longo Brothers Fruit Markets Inc. (Longo’s) and its Grocery Gateway e-commerce business.

Under the deal, which is expected to close in the first quarter of Sobeys' fiscal 2022, Longo’s President and CEO Anthony Longo will continue to lead his family’s grocery business. While Empire will become the majority shareholder, Longo’s will be managed separately. It’s a model of brand separation that has proved successful for Empire in its 2018 acquisition of Farm Boy.

“Longo’s is a grocery crown jewel of the Greater Toronto Area in Southern Ontario, with a very strong brand and legions of loyal satisfied customers,” said Michael Medline, president, CEO and director of Empire, during a mergers and acquisitions meeting, according to a Sentieo transcript. “The partnership with Longo’s accelerates Empire’s growing presence in Ontario and more specifically, the Greater Toronto Area, Canada’s largest and fastest-growing grocery market.”

Related:Longo’s New Sustainability-Focused Store Is a Destination for Fresh

The first Longo store was opened in Toronto in 1956 by three brothers and has since grown to include 36 locations and an e-commerce business known for its high-quality fresh food offerings as well as 1,300 premium private label products. The company employs over 6,000 team members.

With its purchase of Grocery Gateway in 2004, family-owned Longo’s was an early investor in e-commerce—a business which today is over 70,000 customers strong. Like Nova Scotia-based Empire, Longo’s uses a central fulfillment model with a dedicated distribution center for its Grocery Gateway business. In June 2020, Empire launched its e-commerce platform, Voila by Sobeys, powered by the Ocado Group. Its orders are fulfilled through an automated Customer Fulfillment Centre in Vaughan, Ontario. 

“As I’ve said before, many times, central fulfillment is the only profitable approach to grocery e-commerce over the long term. With Grocery Gateway’s years of experience in the GTA (Greater Toronto Area) market, and our automation and AI capabilities, there are learnings we can share to deliver an even better customer experience on both platforms,” said Medline, who added that the company will not merge Sobeys and Longo’s digital experiences, but rather operate two separate e-commerce platforms.

Longo’s loyalty program is also enviable, boasting more than 420,000 households, representing approximately 1 million customers.

“Like Farm Boy, Longo’s will benefit from Empire’s national scale, infrastructure and strong capabilities in areas such as sourcing, logistics and real estate,” said Medline. “We are building momentum as the fastest-growing grocery retailer in Canada and are focused on our customers, on growing our market share and on having a superior rate of return to our owners—our shareholders.

“This partnership with Longo’s, alongside our strong core business and strategic initiatives, makes us even more confident than ever that we have the assets to drive that growth,” continued Medline, who emphasized the new partnership will not distract Empire from its “Project Horizon” three-year strategy to deliver an incremental $500 million in annualized EBITDA by the end of fiscal 2023, announced in July 2020.

“Working through this deal has been an adventure,” said Longo.

“The pandemic brought unique challenges, but Michael and I were able to talk and meet when required. And of course, we had to make our discussions private,” said Longo, recalling an afternoon meeting on a bench outside of the Bay Adelaide building in Toronto. “Together, we persevered through the difficulties of the pandemic, and today, I’m thrilled to announce that we are joining the Empire family.”

Calling Empire a “perfect partner” in the next chapter of Longo’s history and citing the holding company’s “impressive sourcing, logistics and real estate,” Longo said: “Together we will become even stronger, more competitive to grow as a trusted food partner for Canadian families.”

During the meeting, Empire CFO Mike Vels explained the holding company is purchasing shares in Longo’s based on an implied enterprise value for the total company of $700 million. The purchase of 51% of the business on March 16 represents an initial consideration of $357 million.

“Embedded in the calculation of the acquisition price is the valuation for the stores, the online grocery business and then a variable payment for the remaining 49% over time,” added Vels.

It is expected that Longo’s will open new stores in the coming years. “Any additional stores will be incremental to our existing strategic plans and will not impact the pace of the Farm Boy rollout,” said Vels, who added that the valuation does include “meaningful noncustomer-facing synergies,” of which Empire expects to see the full value in the second year following the acquisition.

Now with Sobeys, Farm Boy and Longo’s store banners as well as two digital platforms in its stable, Empire has become a far more complex grocery business, a fact which may keep Medline up at night.

“Sometimes I wake up the morning and wish we only had one banner and they were all the same size stores, but then I slap myself when I realize what a huge prize our complexity actually gives us in the number of banners we have and that it’s a strategic advantage,” he said. Medline, who doesn’t see much overlap between the banners from a customer standpoint, also sees the diverse brands as strengthening the company’s “local” appeal.

“I think that we have to be ultra-careful that these banners and these brands represent different things to Canadians at different times, different seasons at different times of the day, different days of the week even and now as we do more and more analytics and we get better at it, I’m seeing even in our own banners, the complexity of thinking this through and getting it right, and we’re getting it right.”

As to the Longo family’s continued involvement in its banner and Grocery Gateway, Longo’s CEO is hopeful that the road ahead is a long one.

“We love retailing. We love grocery. So, we’d love to be able to stay involved with Empire for decades to come,” said Longo. “We have three generations that work in the business and are all very committed to continuing to grow Longo’s and grow our family legacy—it just will grow it under the great Sobey family umbrella.”