Empire and Longo’s deal: No big changes in store

Empire Company Limited and Longo’s may be joining forces, but their e-commerce customers can expect business as usual for now.

In a deal announced March 16, Empire is buying a 51% stake in Longo’s and its Grocery Gateway e-commerce business in a bid to expand its reach in Ontario.

Longo’s will be managed separately and will keep the Longo’s brand. According to company leaders, Grocery Gateway and Empire’s e-commerce platform Voilà will continue to operate as separate brands as well.

“We both believe that having two strong banners in e-commerce in [the GTA> market is really important,” said Longo’s president and CEO Anthony Longo, in an interview with Canadian Grocer. “[E-commerce> is a fast-growing market and with COVID tailwinds last year, it grew even faster than any of us had imagined. So, we believe there’s still lots of growth to come in e-commerce and having two strong brands with two distinctive propositions for consumers is the right way to go right now.”

Michael Medline, president and CEO of Empire, echoed Longo’s comments. “We’ve got two great platforms that mean different things to different people because Longo’s has had long-standing customer relationships with their Grocery Gateway customers,” Medline told Canadian Grocer. “I’m sure over time—although it’s not a priority—that we’ll be able to compare notes and learn from each other and grow our business even more.”

Longo’s is a pioneer in grocery e-commerce, having acquired Grocery Gateway in 2004. Orders for its 70,000 customers are filled manually in a 150,000-sq.-ft. fulfillment centre located in Vaughan, Ont.

Voilà is powered by the U.K.-based Ocado Group’s grocery technology and orders are fulfilled in an automated warehouse in Vaughan. A second fulfillment centre for Sobeys is being built in Montreal.

Asked if Grocery Gateway will use Ocado technology, Longo said it’s hard to say. “Right now, we pick orders in a dark store, which is going really well for us,” he said. “Clearly, we’re not anywhere near as automated as Voilà is with the Ocado technology, but I think we’ll end up having conversations about best practices. Is there anything they can do to help us and is there anything we can do to help them since we’ve been in the e-commerce business for nearly 20 years.”

At least one grocery industry observer isn’t convinced Grocery Gateway is here to stay. “Given how committed Sobeys is to Voilà, it would be silly to maintain two platforms,” said Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University. “I think converting Grocery Gateway customers into Voilà customers can only make sense.”

On the in-store front, though, it’s safe to say no changes are in store for Longo’s customers. In a note to investors, BMO Capital Markets’ Peter Sklar, said Empire’s acquisition follows a similar playbook to the successful implementation and expansion of Farm Boy. Empire acquired the specialty retailer in 2018 and it operates as an independent business.

“Empire stressed on [a recent conference call> that Longo’s will operate separately and will retain its unique proposition and there should be no impact to the customer shopping experience; indicating that this acquisition will be handled more like Farm Boy and unlike the Safeway debacle,” wrote Sklar.

While Empire will look for efficiencies in other areas of the business, including supply chain and cost savings, Medline told Canadian Grocer he’s very cautious about changing things that affect the customer. “There’s a bond that Longo’s customers have with the Longo’s brand and there’s a bond between our customers and the Empire brands and I don’t want to disturb that at all.”

Charlebois said if he had to pick a buyer for Longo’s, it would be Empire. “First, Empire is respectful to [retail> brands they did not develop themselves,” he said. “Most people who go to Farm Boy on a regular basis probably wouldn’t even recognize that it’s owned by Empire.”

Secondly, Empire supports a code of conduct between grocers and food suppliers. “Empire is the only major grocer recognizing the importance of establishing some discipline between grocers and manufacturers,” he said. “Empire is, in my view, a very responsible company... and accountable towards partners within their own network.”

While the deal accelerates Empire’s presence in Ontario—Longo’s has 36 locations—expansion plans will be up to Longo’s. “Empire has said, ‘grow at the pace you want to grow. We’re going to leave you alone to do that,’” said Longo. However, Longo’s can tap into Empire’s real estate arm for support.

“Our ability to find real estate is really good and has really helped Farm Boy,” said Medline. “I’m sure it will help the Longo’s team as well.”

Longo’s hit pause on opening new stores during the pandemic in 2020 and this year it’s focusing on store renovations. “We have some [new> stores in the pipeline for 2022, which we’re really excited about,” said Longo. “Right now, it’s all about thinking about gradual growth like we always have. We want to grow in a responsible way so we can execute fantastically every day.”

For now, the focus remains on Ontario. “There’s so much room here in Ontario for the Longo’s brand,” said Medline. “And so, I don’t see any reason we’d go outside where the brand is best known.”