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Mar 10, 2022

Supply chain 'No. 1 challenge' for Canadian retailers: Sobeys CEO

Food inflation lifts Empire Company Q3 sales


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Empire Co. Ltd. pulled off a higher profit and sales in its latest quarter despite a challenging retail environment punctuated by higher costs and supply chains bottlenecks. 

The parent company of grocery chains Sobeys, Safeway, FreshCo and others topped expectations with a third-quarter profit of $203.4 million, up from $176.3 million a year earlier.

The company also reported sales of $7.38 billion, up from $7.02 billion.

"When you look at these results against the backdrop of the extremely volatile economic and retail environment, the strength of our team shines through," Michael Medline, president and CEO of Empire and Sobeys Inc., said in a statement.

During a call with analysts Thursday, he said supply chain snarls continue to dog the industry. 

"The No. 1 challenge in all retail right now is the supply chain," Medline said.  "It just hasn't gotten back in shape for many reasons, including high demand and disruptions."

At times the grocer has had to find alternatives to stock its shelves when suppliers couldn't keep up, he said. 

"It's causing us to go out and buy more on the market and at times really scramble to make sure that we fulfil our customers' needs," Medline said. 

Those efforts are reflected in the strong "shelf availability" of products at the company's stores, he said. 

Still, same-store sales excluding fuel fell 1.7 per cent compared with elevated sales last year when restrictions directed food dollars away from restaurants toward grocery.  

In its outlook, Empire said it expects that same-store sales will continue to be negative for the remainder of its 2022 financial year as industry volumes fall compared with the unusually high COVID-19-driven sales levels a year ago.

Still, the company said it does not expect grocery consumer behaviour to fully return to pre-pandemic levels for the foreseeable future given the unpredictability of COVID-19.

Meanwhile, inflation is having a noticeable impact on shopping habits as consumers look to save money.

Customers are buying more of the retailer's house brands and opting for larger formats that offer better value, Sobeys chief operating officer Pierre St-Laurent told analysts.

"Our own brand is on fire right now," he said, referring to Sobeys' private label Compliments. "We're growing much faster than national brands."

The grocery retailer has also recorded good traction on value packs, St-Laurent said.

"The large assortment we have in our store provides many options to customers to mitigate inflation right now," he said. "We are seeing customer behaviour changes, they are looking for more value in everything they're trying to buy." 

Empire's e-commerce platforms recorded a combined sales growth of 17 per cent, primarily driven by the acquisition of Grocery Gateway.

Its online grocery platform Voilà also grew in the quarter, with plans to open new customer fulfilment centres.

In addition to its location in Vaughan, Ont., the retailer said it entered the testing stage for its second customer fulfilment centre in Montreal earlier this month. A third location in Calgary is expected to come online in 2024 with a Vancouver-area facility slated to open in 2025.