Empire’s private label penetration is growing

Trends the grocer was seeing prior to the pandemic have been amplified, including the demand for its Voila delivery service.

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Empire – parent of grocery banners Sobeys, IGA, Safeway, FreshCo and Farm Boy – announced an adjusted year-over-year net earnings jump of 43.2% in the quarter ending May 2. It’s also reporting private label penetration is outpacing the competition as it begins plans for the rollout of its new delivery service.

For Q4, Empire recorded adjusted net earnings of $181.2 million compared to $126.5 million last year, which, according to president and CEO Michael Medline, was “one of the proudest quarters in Empire’s 113-year history.”

During the beginning of the COVID-19 pandemic, Medline says, Empire’s market share increases were “significant,” and it successfully completed its three-year transformation plan, Project Sunrise, which aimed simplify its organizational structure, expand its discount banners, realign the brands it carries on shelf and cut costs after several lacklustre quarters. According to Empire, it exceeded management’s initial expectations of $500 million in net benefits.

In its earnings call Thursday, Medline reports that the penetration of private label has been growing faster than the industry for all of its 2020 fiscal year, a trend that has only been further amplified in the past 15 weeks during the pandemic. He says Empire will continue to improve its private label brand portfolio, which includes the Compliments and Signal brands, as it will become increasingly important in uncertain economic times.

The company also reports same-store sales, excluding fuel, increased by 18%, which it says was substantially driven by changing customer shopping patterns throughout the pandemic, including a shift in consumption from restaurants and hospitality businesses to grocery stores.

In its outlook statement, Empire says the pandemic has fundamentally impacted how Canadians shop for food, shopping less frequently, gravitating to one-stop-shopping and increasing basket sizes to reduce exposure to COVID-19. Medline says it has seen the number of customers with a basket size over $100 triple since the pandemic began.

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The company also reports that Voilà by Sobeys, its online grocery home delivery service for the GTA, is set to begin customer deliveries in June, a launch that was accelerated due to demand. Construction of Voilà’s second customer fulfillment centre in Montreal – which is intended to support Voila for IGA customers in Ottawa and Montreal – was delayed due to the temporary shutdown of non-essential construction in Quebec due to COVID-19, and 2021 launch plans are currently being reviewed.

Medline says that Empire expects Voila will be dilutive to earnings per share by approximately $0.05 in the first quarter of fiscal 2021. While most of the costs are related to logistics, Empire CFO Michael Vels said this also includes some marketing spend, particularly on social media.

“We’re not going to go out totally silent. But at the same time, as we have said before, we think one of the COVID impacts – at least in the early going – is that we would not require as much of a heavy marketing investment,” due to built-in demand for the service.

Finally, Empire announced that 15 British Columbia and two Manitoba FreshCo locations are set to open in 2020, part of a continued effort to expand the reach of its discount banners, and that an additional seven Farm Boy locations are coming to Ontario to increase its appeal to urban shoppers. This also comes after news that Sobeys was among the grocery retailers that had ended hazard pay for employees.