A look at Empire’s plan to take on rivals

Sobeys' parent co is behind on grocery delivery and analytics, but experts see potential in the grocer's new three-year strategy.

Sobeys

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With last month’s release of its new three-year strategy, Sobeys parent company Empire offered a peek into what it has in store for customers – and competitors – over the next several years.

The Nova Scotia-based grocery retailer, Canada’s second-largest behind Loblaw, intends to win over customers and grow market share by spending to the tune of $700 million per year over the next three years to improve its store network, ramp up its ecommerce operations and expand its private label portfolio. In addition, it plans to roll-out 20 new Farm Boy locations in Ontario and continue strengthening its discount offering by converting a further 30 to 35 stores to its discount FreshCo banner – which it recently rebranded to better reflect its value proposition – in Western Canada. At the same time, it will continue striving to rein in costs and boost margins, with the goal of achieving a potential $500 million in annualized EBITDA come 2023.

The new plan (dubbed “Project Horizon”) follows the conclusion of “Project Sunrise,” its previous three-year strategy, during which it elevated the role of marketing on its leadership team, acquired Farm Boy for $800 million, refreshed the FreshCo brand, invested in its data and analytics capabilities and positioned itself for the launch of Voilà by Sobeys – its first real attempt at joining the e-grocery race through a partnership with U.K.-based eommerce company Ocado. Sunrise was seen as a way to right the ship after its acquisition of Safeway resulted in billions of dollars in losses, due to the decision to replace much-loved private label brands and struggles with modernizing supply chain and IT systems it had inherited from the banner’s previous owner. The plan helped Empire net $550 million in benefits, exceeding its own projections by $50 million.

While the company arrived late to grocery delivery and continues to trail rivals on data-driven personalization, industry experts told strategy they believe it now has the leadership team and foundational elements in place to move against competitors during the second phase of its turnaround plan. (The company did not respond to requests for an interview).

“What you’re going to see in the next three years is a real enhancement – a pedal to the metal,” says David Kincaid, managing partner at brand consultancy Level5 Strategy. “They’ve got the right portfolio, they’ve got the right consumer-led propositions, now it’s a matter of merchandising.”

The new, elevated role of marketing 

Sandra_SandersonColour (2)Empire’s early turnaround efforts were focused on putting the right team in place.

Since taking over as CEO in January 2017, Michael Medline, a former CEO of Canadian Tire Corporation, has hired Sandra Sanderson (right) as SVP of marketing for many Sobeys banners – including FreshCo, Foodland, Safeway, Thrifty Foods and Lawton’s Drugs – fulfilling the company’s May 2017 promise to appoint a marketing leader with “national responsibility and a dedicated team to reflect the emphasis placed on the voice of the customer, brand management and digital innovation.”

Sanderson arrived in December 2018 having previously helped relaunch Walmart Canada’s fresh food offering. Prior to Walmart, she oversaw marketing for Shoppers Drug Mart, Pharmaprix and the Optimum loyalty program.

Other leadership changes included naming Lyne Castonguay as EVP of store experience, Pierre St-Laurent as EVP of merchandising and Quebec and Sarah Joyce as SVP of ecommerce in June 2018. One year later, St-Laurent was moved into the new role of chief operating officer, full service and Castonguay left the company as part of a “planned transition.”

Expert insight

  • David Pullara, an independent consultant and marketing instructor at York University’s Schulich School of Business: Adding new marketing leadership is not enough; the leader must also “be given the mandate and budget required to do the job well… If the company’s desire was to place a greater focus on the consumer, then elevating the marketing function [in May 2017] was a good place to start.”
  • David Kincaid, managing partner at Level5: As CEO, Medline wants to “build the brand’s proposition around what the market needs or wants. The increase in the funding on the marketing side of the equation for Empire really is because of this… To be market-led, your marketing department – from an insights standpoint, strategy standpoint, a tactics and executional standpoint, from a measurement standpoint – has a much higher profile.”

The launch of Voilà by Sobeys

Empire Company Limited-Voil- by Sobeys launches in the GTA - TheEmpire was one of the first players to move into grocery delivery. Through Quebec banner IGA, it began offering grocery delivery to customers in Quebec in 1998, according to Sylvain Charlebois, senior director of the Agri-food Analytics Lab at Dalhousie University. However, he says Empire’s organizational complexity previously hindered the expansion of its ecommerce strategy.

Voilà by Sobeys – the company’s response to competitors making the most of growing interest in grocery delivery, which further accelerated during the pandemic – helps solve this issue by being centrally coordinated, Charlebois says.

Voilà only became available to customers in the GTA on June 22, after an initial test launched in April during the height of the pandemic. Unlike with competitors, groceries are delivered from a distribution centre in Vaughan, based on Ocado robotic technology, that can process a 50-item order in less than five minutes. The second of four planned distribution centres is being built in Montreal that will serve Quebec customers starting in 2022.

To date, customers appear impressed with the service, says Charlebois. With Voilà, Sobeys has so far been able to improve order accuracy and timing, offering same-day delivery that arrives within a one-hour window selected by customers. That, he says, addresses two of the consumer complaints most frequently cited during the pandemic: late and inaccurate orders. Charlebois notes that, anecdotally, he has heard the quality of produce available through Voilà “is not necessarily there,” but says the company is likely working on that.

Expert insight

  • Kincaid: “By being late to the game, [Sobeys is] actually first out of the chute with today’s changing [consumer],” one that’s currently more willing to shop online. “That’s good luck. It’s a terrible thing to say… but that’s the reality. They’ve come out with a strong strategy; they’ve been handed good luck. If it works… more advanced competitors like Loblaw’s will turn around and evolve [their] current click-and-collect program. Now [those competitors] are responding to Sobeys as opposed to Sobeys responding – as number three or four in the market – to all these others.”
  • Pullara: The company’s robotic fulfilment centres resemble those of Amazon, which made its own push into grocery with the 2017 acquisition of Whole Foods. But Pullara says Amazon remains less of a competitive threat in Canada. Costco, which, along with Walmart, has stolen grocery market share in recent years, introduced same-day delivery via Instacart last week, he notes. “That makes Costco a much more immediate threat for Sobeys than Amazon. That said, investing in the right technology today will help Sobeys be more prepared to compete when Amazon decides to ‘flip the switch’ and offer the same type of service in Canada as they do in the U.S., which is bound to happen eventually.”

A focus on data, analytics and personalization

Empire Company Limited-Voil- by Sobeys launches in the GTA - TheEmpire claims to have made significant investments in advancing its analytics capabilities during Project Sunrise. Over the next three years, the company says analytics will “drive improvements in every customer facing element, including store footprints, customer promotions and availability of product on shelf.”

Moving forward, Empire says data will help it identify customer preferences and move from mass marketing to more direct, personalized communications. It will make investments in “effective pricing and promotional tools by using advanced analytics and artificial intelligence.”

But even with the new investments, the company is really just playing catch-up to more advanced competitors like Loblaw, which owns the largest, privately-held customer database in Canada and which continues to explore new ways of leveraging that data, says Kincaid.

Expert insight

  • Pullara: “Investing in data is easy; using it effectively as an organization is the difficult part. Loblaws has been investing in analytics for a long time… and Sobeys isn’t going to be able to catch-up overnight.”
  • Kincaid: “When your [competitor] is as dominant at Loblaw’s – in a world headed for data, for customization, personalized experience – what you’re talking about becomes the cost of doing business. I don’t see them being able to turn that into a sustainable competitive advantage. I think they’re playing catch up here.”
  • Charlebois: “[Empire] certainly has a lot of work to do on analytics and understanding its customer base and anticipating purchases and things like that. I actually do think that by working with Ocado, they’ll be able to develop that aspect of the business, which is currently weaker than rivals.”

Editor’s note: A previous version of this article stated Sanderson was hired to lead marketing for all Empire banners, including IGA and Farm Boy. Strategy regrets the error.