Empire Company Ltd., the owner of the Sobeys, FreshCo and Farm Boy grocery banners, will spend $2 billion during the next three years to grow its store network, build two new e-commerce fulfillment centres and “win” the online grocery battle.
Called Project Horizon, Empire (EMP-A-T) said in a release Wednesday morning the company plans to create an incremental $500 million in annualized EBITDA, improving its margin by 100 basis points by fiscal 2023.
“Empire now has the team, the structure and the vision to achieve its sales and earnings potential,” said Michael Medline, president and CEO of Empire, in the announcement. “Even though we exceeded our Project Sunrise savings target of $550 million, there is still substantial value to unlock through Project Horizon.”
Project Sunrise was Empire’s now-completed three-year plan to reorganize the company in the wake of Medline’s hiring as president and CEO.
Originally planned to create $500 million in savings and cost benefits, the plan actually led to $550 million in benefits, much of which has been used to power its aggressive growth, store conversions, corporate processes and move into e-commerce.
“As the retail landscape in Canada continues to react and shift under the seismic waves caused by the pandemic, it is clear now, more than ever, that we must be able to serve customers where, when and how they want to shop,” Medline said in the release.
“We will invest in our core store business to drive growth and will move much faster with Voilà customer fulfillment centres and a new, exciting store pick solution, using Ocado technology.”
New Farm Boy stores, FreshCo conversions
The real estate aspects of Project Horizon include approximately 20 new Farm Boy locations in Ontario, and the conversion of 30 to 35 additional conventional banners to the discount FreshCo banner in Western Canada.
The FreshCo expansion and conversion process has already begun, with 28 locations confirmed as of June 17; 17 stores open and operating, including 15 in B.C., and two in Manitoba; 11 stores scheduled to open in fiscal 2021, four each in Saskatchewan and Manitoba, two in Alberta and one in B.C.
Five other former full-service stores in Western Canada remained close pending conversions.
The Voilà by Sobeys will get a major boost with two new customer fulfillment centres (CFCs) in Western Canada to join the existing facilities in Toronto (now operating) and Montreal (set to open in 2021 after pandemic-related construction delays). It will serve Ottawa and Quebec.
Empire’s investment in Voilà for fiscal 2021, including its share of the Montreal CFC, is estimated at $65 million.
In total, Empire says its capital spend during each of the next three years to accomplish the expansions, conversions, upgraded technology and other goals will be in the range of $700 million.
In 2021, the spend is estimated at $650 to $675 million, with approximately half of that total dedicated to opening 10 to 15 FreshCos in the West and eight Farm Boys in Ontario.
The company did not announce locations for the two new CFCs, nor for any store openings or conversions which had not already been announced.
Other Project Horizon goals
Additional goals of Project Horizon include:
* improving store space productivity, driving higher sales per square foot via improved analytics, store footprints, customer promotions and availability of products;
* in addition to accelerating the Voilà e-commerce CFCs, Empire will continue introducing and expanding the Ocado store pick platform to serve customers in areas where the CFCs don’t deliver. It will begin in Nova Scotia at the end of the summer, before expanding and moving West;
* continue to improve its private brands’ positioning and branding to increase penetration through increased distribution, shelf placement and product innovation;
* despite significantly improving its efficiency and cost competitiveness, management believes opportunity remains to remove non-value-added costs, ensure cost containment and optimize margins.
Empire also plans to continue to increase its dividends and re-purchase shares on a “disciplined basis, taking into account liquidity expectations, market conditions and the outlook for the three years.”
The company as experienced an average dividend growth rate of seven per cent over the last three years. It has conducted share buybacks of $100 million in fiscal 2020.
Empire Company Limited is a Canadian company headquartered in Stellarton, N.S.
Empire’s key businesses are food retailing, through wholly owned subsidiary Sobeys Inc., affiliated banners such as FreshCo and Farm Boy, and related real estate.
With approximately $26.6 billion in annualized sales and $14.6 billion in assets, Empire and its subsidiaries, franchisees and affiliates employ approximately 127,000.