Empire grows its ecomm business with Longo’s purchase

The deal, structured so the Sobeys parent co will achieve sole ownership over time, includes developing Grocery Gateway independently of Voila.

The parent company of Sobeys, FreshCo and Farm Boy is adding to its “Empire” – buying a majority stake in GTA specialty grocery Longo’s, as well as its Grocery Gateway ecommerce and delivery service.

The deal, worth $357 million, is based on 51% ownership and is structured to allow Empire to achieve 100% ownership of the family-run banner over the next ten years, valuing the company at $700 million.

Empire recently announced a quarterly sales hike of $623.5 million over the previous year to $7 billion dollars, including a massive 315% increase in ecommerce sales. In a conference call Tuesday morning, Empire president and CEO Michael Medline said that a major part of Project Horizon, the company’s plan to take on rivals like Loblaw and Metro to the tune of $700 million dollars in expenditures annually, is “to win ecommerce.”

Longo’s, which purchased Grocery Gateway in 2004, uses a central fulfilment model for the business, which Medline called the “only profitable approach” to grocery ecommerce. The model is one that Sobeys has used for its Voila delivery service, touting the fact that orders coming from a central warehouse allows it to ensure freshness and product quality. Both Voila and Grocery Gateway serve roughly the same delivery zone.

For now, the company says, Voilà and Grocery Gateway will focus independently on capturing market share, with the company saying it is committed to growing Grocery Gateway. Having the two ecommerce brands will be positive to increasing sales in the near-term, according to Empire CFO Michael Vels, who added during the call that its management teams will collaborate regarding product assortment, innovation and efficiency.

“We believe we appeal to more customers with two [ecommerce] platforms,” Medline added. Empire will tap Grocery Gateway’s decades of delivery experience, while Longo’s will benefit from Voila’s Ocado fulfillment technology.

Medline said the acquisition accelerates the Empire presence in Ontario, and includes Longo’s private label offerings, but also 420,000 members of its loyalty program and 70,000 Grocery Gateway customers. Longo’s, which Medline called “one of the most successful and sought-after brands in the GTA” and “a crown jewel of grocery,” will benefit from Empire’s national scale and purchasing power.

The company said Longo’s customers won’t see any changes to the shopping experience, online or in-store; some of the benefits of the acquisition would be through “non-customer facing synergies.” Also, Vels added, there are no plans for converting Longo’s to Sobeys, or vice versa.

Longo’s, which in 2018 launched a concept store to tap sustainability trends and attract a suburban shopper, and more recently unveiled a meal kit kiosk format, plans to open “several” new stores over the next five years.

Today, the Longo’s business has grown to 6,000 employees and 36 locations in the GTA, including 10 new stores in the last five years. Sales were approximately $1.1 billion for the fiscal year ended Feb. 28.

Longo’s president and CEO Anthony Longo says the acquisition was informed by discussions he had with Medline last summer regarding the acquisition of Farm Boy, another specialty grocer, and its success. Longo also cites the Project Sunrise turnaround and the Farm Boy purchase as moves that gave him confidence the deal would be a path to success.