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Food inflation beginning to moderate, Empire executives say

Executives discussed inflation, Project Horizon and plans for fiscal 2024 on the grocer’s latest earnings call
Jillian Morgan, female, digital editor for Canadian Grocer
sobeys

Empire Company Ltd. president and chief executive Michael Medline says cost increase requests from the grocer’s suppliers appear to have peaked in the third quarter of fiscal 2023.  

The parent company of Sobeys, FreshCo, IGA and other retail banners held its fourth quarter earnings call Thursday (June 22). 

Executives told analysts food inflation moderated in Q4, but warned that the situation remains volatile.

“We expect supplier cost increase requests will continue to moderate over the coming quarters,” Medline said. “This is supported by most ingredient commodities coming off their highs, such as wheat flour and various cooking oils. For several quarters we have said that as inflation abates, Empire will be well positioned. And in Q4 we began to see early indications of this reflected in our sales performance and in our tonnage. We are also continuing to see traffic in our stores improve with higher transaction counts in Q4 across all regions. Although basket sizes are still lower than last year, we are seeing this trend improve.”

READ: Leading an Empire

The CEO credited the company’s performance to a combination of factors, including its now-nationwide Scene+ loyalty program – which counts 13 million members – and the strength of Empire’s full-service banners.

But inflation still remains high, said Chief Operating Officer Pierre St-Laurent.

“We're not out of the woods… We are seeing some normalization in fresh, but we need to remain extremely focused to manage those changes,” St-Laurent told analysts. “Penetration is the challenge because people are looking for deals… It's really competitive, like it was and like it will be.”

Empire reported net earnings of $182.9 million for the quarter, compared to $178.5 million last year. Sales totalled $7.41 billion, down from $7.84 billion in its fourth quarter last year

Same-store sales, excluding fuel sales, increased 2.6%.

“Our full-service business in particular showed a noticeable upswing in same-store sales growth versus prior quarters with higher unit counts and increased traffic in stores,” Medline said. “FreshCo continued to deliver very healthy sales growth with double digit same store sales.”  

Fiscal 2023 marked the conclusion of Empire’s six-year growth strategy that began with Project Sunrise. 

The strategy’s final three-year-long phase, Project Horizon, included store renovations and expansions (including FreshCo conversions and the expansion of Farm Boy) and the launch of 1000 new private label products. 

A year after Empire became a co-owner of the Scene+ program operated by Cineplex Inc. and Scotiabank, Matt Reindel, executive vice president and chief financial officer, shared details on its success. 

“There's two things that really excited us about the transition. One was the fact that there were all these points in the market – many, many, many millions of points in the market that could be now used at Empire stores. But there was also a large number of existing Scene customers who were not shopping at Empire,” he said. “We believed [those two factors] would actually result in us having incremental net new customers to our banners… The data that we see so far is showing that we are attracting new customers into our stores and [they] are using those points in our stores. But it's early… I don't want to overstate the benefits yet.” 

Empire plans to invest $775 million in fiscal 2024. Some of that capital will be used to renovate 20% to 25% of its store network. 

Those renovations include sustainability initiatives such as refrigeration system upgrades, heating, ventilation and air conditioning system upgrades and other energy efficiency initiatives.

Among its future goals, Empire’s focus on digital and data will include the continued expansion of its e-commerce presence with Voilà, which recently launched in Alberta

Longo's e-commerce business, Grocery Gateway, will be merged into Voilà in July 2023. 

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