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Empire CEO says grocer can win back loyalty of Safeway customers

Focusing only on price and straying from its overall value proposition was damaging to the brand, says Michael Medline

Supermarket owner Empire Co. has a lot of work to do before it can regain customer loyalty lost due to mistakes made after its purchase of Safeway Canada, its new chief executive said on Wednesday.

Focus groups suggested "we really did let them down" but there's still loyalty to Safeway in the west that can be recaptured, Michael Medline told analysts. It was his first conference call since becoming the head of Canada's second-largest grocery chain, which also owns Sobeys.

"You've got to be priced right, and that's pretty basic. But, I think we strayed away about talking about our overall value proposition," Medline said.

"Canadians should shop us for a variety of reasons . . . and we got focused on talking only about price."

The former Canadian Tire executive said investors would likely only see incremental improvements in the company's fiscal fourth quarter.

Empire reported a modest profit on Wednesday after recovering from a huge loss in last year's third quarter, when its previous CEO oversaw a writedown involving its businesses in Western Canada.

Excluding the writedowns, however, Empire's earnings in this year's third quarter fell by 58% to $34.6 million. Its revenue fell by $137.4 million to $5.89 billion.

Medline said company management had made progress on getting product pricing right and stabilizing the profit margins.

But, it needs to cut out costs further to improve margins and make the organization easier to manage, he said, without disclosing exactly how those goals would be achieved. He did, however, point to the company's "highly regionalized" structure.

"I can tell you, every single day that goes by, I realize that the current regional structure we have is very, very difficult to get things done," he said.

The conference call followed the first quarterly report issued by Empire since Medline became chief executive officer in January, just weeks before the end of the company's fiscal third quarter.

Based in Stellarton, N.S., Empire had $30.5 million of net income for the 13 weeks ended Feb. 4.

A year earlier, Empire had a loss of $1.37 billion or $5.03 per share, mostly due to a writedown of the Safeway chain -- which Sobeys purchased for $5.8 billion in cash in November 2013 to expand its presence in Western Canada.

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