Canadian grocery giant Empire Company Limited is launching an aggressive three-year growth strategy for core business expansion and ecommerce acceleration.
PROJECT HORIZON WILL INCLUDE A $2 BILLION CAPITAL INVESTMENT AND A THREE YEAR GROWTH STRATEGY
The initiative, Project Horizon, will include a more than $2 billion capital investment.
The company said its new three-year strategy will deliver an incremental $500 million in annualized EBITDA by the end of fiscal 2023. Building from the overwhelming success of Project Sunrise, Empire’s previous three-year strategy, the company is well positioned to accelerate a new ambitious growth plan, it added.
“Empire now has the team, the structure and the vision to achieve its sales and earnings potential,” said Michael Medline, President & CEO, Empire, in a statement. “Even though we exceeded our Project Sunrise savings target of $550 million, there is still substantial value to unlock through Project Horizon. As the retail landscape in Canada continues to react and shift, under the seismic waves caused by the pandemic, it is clear now, more than ever, that we must be able to serve customers where, when and how they want to shop. We will invest in our core store business to drive growth and will move much faster with Voilà customer fulfillment centres and a new, exciting store pick solution, using Ocado technology.”
Empire said it will accelerate investment in physical assets, through renovations and conversions, and store processes, communications, training, technology, and tools. Capital spend is expected to average approximately $700 million annually over the next three years, which includes approximately 20 new Farm Boy locations in Ontario and the conversion of approximately 30-35 conventional stores to FreshCo in Western Canada.
In fiscal 2021 capital spend is expected to be $650 - $675 million with approximately half of this investment in renovations and new stores. Empire will open approximately 10-15 FreshCo stores in Western Canada and expand the Farm Boy footprint by approximately eight stores in Ontario. It will also invest approximately 15 percent of its estimated spend on advanced analytics technology and other technology systems. Empire's total investment in Voilà for fiscal 2021, including its share of the investment in the Montreal CFC (Customer Fulfillment Centre), is approximately $65 million.
"It must be spending week by big retail in Canada. First Walmart now Empire. Are we going to hear from Metro and Loblaw this week too? I think Empire indeed has some strong opportunities to grow — specifically with the expansion of FreshCo in the West and Farm Boy in Ontario,” said Bruce Winder, author of RETAIL Before, During & After COVID-19 and President of Bruce Winder Retail. Winder was referring to Walmart Canada’s $3.5 billion investment recently.
“I think they are playing the Ocado card well with further growth of markets to serve and the test and potential roll out of micro-fulfillment technology at select stores in smaller markets. They are definitely chasing grocery ecommerce aggressively which I think is the right move. Time will tell if Ocado will be their secret weapon to get to best-in-class in food delivery.
“The use of AI and other technology is a given and will be used by all grocers soon if not being used now so I think they will have a harder time differentiating themselves on this front. Personalization is expected and has been in operation for a while at Loblaw.”
WILL COMPETITORS SUCH AS LOBLAW AND METRO FOLLOW SUIT?
Has Empire's plans considered a strong competitive response by Loblaw and Metro? Two strong grocers who have proven to be innovative and agile.
“They will not sit by and watch Empire take market share from them. Then you have Walmart and Costco breathing down the big three's neck and gaining traction over the last few years. Don't forget, Amazon is getting stronger by the day too. They can only get bigger and will capture share as well,” added Winder. “More and more the reality may be that spending big is required just to maintain market share and protect margins as much as possible.”
Gary Newbury, a retail supply chain strategist and serial transformation executive, said Empire has pressed the button on the next Three-Year sprint Project Horizon.
“This will see a series of internal changes with a continued focus on cost efficiencies. Empire will continue to roll out its piloted GTA-based Ocado CFC, or a store-based picking approach for catchment areas that are not covered by its ultimate plan to install 4 CFCs across Canada - one is already advancing in Boucherville, due to go live 2022. This would suggest online ordering for places ‘out in the sticks’ may not be able to place an online order for a few years. This is a strategy to lose customers to more nimble competitors already fully engaged in ecomm. In fact, I have been advocating Sobeys need a store picking solution and for this to be in position during 2019, and then migrate consumers to the full blown Voila service once it has demonstrated to consumers it has mastery of their online orders.
“I can’t help concluding, this shopping list of new initiatives has been hurried along after Walmart Canada’s significant investment ($3.5B) in addressing their developing omnichannel consumer. Empire needs to focus on accelerating the launch of its online proposition with some speed to build loyalty, before the customer acquisition costs rocket and they are in direct battle with Walmart, Loblaws, Costco or Metro Inc.”
Having no ecomm presence during the pandemic — even a basic “click and collect” — will have hurt Empire undoubtedly, with some consumers wanting groceries without needing to visit the shelves, said Newbury.
“This alone demonstrates the performance gap of digital transformation here in Canada which is not isolated to just the grocery category,” he said.
“One of the challenges of taking a grocery brand online is the ability of consumers to sit at home and split their baskets to use their shopping dollars wisely. Building loyalty by consistent order fulfilment performance at the household (on time and in full) is one way of mitigating the risk of split baskets. However, being late to the gate risks being seen as an ‘also ran’ rather than a leader in the field.”
Sylvain Charlebois, Professor, Food Distribution and Policy, Faculties of Management and Agriculture, Dalhousie University, said Project Horizon covers a lot of ground, but it points to how Empire’s leadership is maturing well with Medline at the helm.
“While Project Sunrise was all about cost cutting, Project Horizon sets a clear path for growth with clear objectives. I see three main ones. First, network design. I’m expecting its network of stores to change significantly. The market is overstored and the focus will be more on discount stores, post-COVID. Many closures and conversions will occur,” he said.
“Secondly, the private label strategy at Sobeys needs work. To increase margins, Sobeys needs to do a better a job at deploying some key products and engage with merchants more effectively. And finally, ecommerce. With Voilà, Sobeys has set a new benchmark in Canada, and it needs to keep that way by going national, as soon as possible. Other grocers will respond aggressively.”
Empire said it is accelerating its plans for the remaining two Voilà ecommerce CFCs – for a total of four CFCs across Canada – and introducing Ocado's proven store pick solution. This store pick solution will serve customers in areas where the CFCs will not deliver, or are not yet built, and will begin in Nova Scotia at the end of the summer, before expanding and moving West. Ocado's store pick solution is live and successful in various cities across the world.
It also said it will grow the company’s private label portfolio.
Empire said it will cover approximately 75 percent of Canadian households representing approximately 90 percent of Canadians' spend.