Project Sunrise 'on plan, on time' for bottom line growth: Medline

Despite it being the strongest quarter since launching a multi-year, $500-million cost-cutting plan in 2017, Empire CEO Michael Medline said the company still had "a long way to go."

The parent of Sobeys Inc. has been steadily making strides since introducing Project Sunrise in an effort to turnaround its business after missteps like the botched 2013 Safeway acquisition. Empire has simplified the organizational structure and reduced costs, and the efforts continue to pay off. In its most recent quarter, Empire said sales hit $6.21 billion, up from nearly $6.03 billion a year ago. Same-store sales, meanwhile, were up 3.2% and same-store sales excluding fuel were up 2.5%.

"We are halfway through Project Sunrise and this initiative continues to progress exactly as we anticipated, on plan, on time," said Medline during a conference call with analysts late last week. "Again this quarter, we are more confident than ever in our ability to reach our Sunrise target of at least $500 million and expect to see the vast majority of these costs and margin improvements fall to the bottom line."

Category resets will drive a large portion of Sunrise savings moving forward and will help ensure "our shelves are stocked with the items that customers want most," said Medline. "As we realign our stores wave by wave over the next year, we will see some slight changes to the brands we carry, but no material changes to the layout of the store."

Empire's strategy for growth is to focus on key urban and suburban markets such as the Greater Toronto Area "where our market share is, frankly, too low," said Medline, before laying out the company's three-pronged approach to winning in these markets:

• Empire's recent acquisition of the popular Ontario-based retailer Farm Boy and its impending expansion will give the company a stronger foothold in urban and suburban areas;


• Smarter and higher return investments in both the company's discount and conventional banners will "revitalize" the existing store network in those markets, and


• Sobeys’ Ocado-based e-commerce platform, which is on track to launch in 2020, will position the company well to expand in the Greater Toronto Area and beyond.

Another key strategic focus for Empire is the expansion of its discount FreshCo banner in the west. Medline said the company remained on track to open its first two FreshCo stores in Winnipeg in the spring. "Our expansion of FreshCo into the west will allow us to convert some of our underperforming Sobeys and Safeway stores in markets which are better suited to discount and to participate in a greater degree in this high growth segment," he said.

The company, will in fact, convert more than 60 Safeways to the FrechCo banner in Western Canada over the next five years. The stores will include new branding and consumer experience that were introduced in London, Ont. early last summer, which have yielded "positive results and customer feedback," said Medline.

Medline said he has always contended that retail is a simple business: sales, margin, costs and capital allocation. "The trick is executing on these, quarter after quarter, year after year and we still have room to improve on our execution," he said.

"We are putting the foundation in place and gaining traction, but we still have ways to go to extract this company's full earnings potential," he said. "So for any of my 120,000 teammates listening to this call, let's not get ahead of ourselves. We still have a long way to go."