Grocery company Empire is pausing the opening of its fourth customer fulfilment centre in Vancouver, citing that Canada's grocery e-commerce market is smaller than the company anticipated when it launched its online delivery platform Voilà in 2020.
Empire's president and CEO, Michael Medline, said the company is losing more money than it originally estimated when it opened its first three warehouses in the Greater Toronto and Montreal areas and Rocky View County, Alberta.
“This actually masks the strength of our brick-and-mortar business,” he told analysts on the company's fourth-quarter earnings call on Thursday.
Medline said Empire had planned to open various fulfillment centers in stages to maintain profitability levels. Medline said it hoped the “rapid growth” in e-commerce grocery sales would make up for initial operating losses at its fulfillment centers.
But all three existing warehouses are still losing money, said Chief Financial Officer Matt Reindel.
“That's definitely what we expected, but they're all trending in the right direction,” he said.
Medline said it was abandoning plans for a fourth store and ending a mutual exclusivity agreement Empire signed in 2018 with British online grocer Ocado Group for the use of its e-commerce platform.
He said that as a result of closing the deal early, Empire will incur a one-time charge of $12 million next quarter, but that this will be offset by expected savings.
“We are doing everything we can to make e-commerce more profitable,” Medline said.
“But we can't wait. We have an obligation to our investors to be profitable every year and to be one of the best performing businesses in terms of revenue.”
Medline said he has two theories as to why e-commerce for groceries hasn't taken off in Canada to the same extent as it has in the U.S. and Britain.
He said there is already “fierce competition” between brick-and-mortar stores in Canada, and they offer better service to customers.
The second reason, although arguable, is that grocery e-commerce got off to a tough start in the early days of the COVID-19 pandemic, he said.
“It was awful during the worst part of the pandemic, when Canadians really needed to turn to e-commerce for groceries,” Medline said, recalling that the offerings and alternatives were “terrible.”
“People were just trying to get food to people in crisis, and I understand that, but I think it hurt the brand.”
The parent company of grocery chains Sobeys and Safeway said on Thursday it would raise its quarterly dividend to 20 cents a share from 18.25 cents.
The Stellarton, Nova Scotia-based grocer reported profits of $148.9 million, or 61 cents per diluted share, for the quarter ended May 4, down from $182.9 million, or 72 cents per diluted share, in the same period a year earlier, leading to an increased payout to shareholders.
Revenue for the quarter was $7.4 billion, roughly flat compared to the same period last year.
Same-store sales decreased 0.3% compared to the same period last year, but same-store sales excluding fuel sales increased 0.2%.
RBC Dominion Securities analyst Eileen Natel said in a note that the results were in line with expectations, adding that “consumer value-seeking behavior continues to pose a headwind.”
Medline said consumer confidence remained low in the fourth quarter due to a “hangover” from rising inflation and interest rates. Consumers remain cautious with their spending even as food inflation continues to trend downward to 1.4% in April, Medline said.
He said the Bank of Canada's decision earlier this month to cut its key interest rate “marks the beginning of a turning point in improving customer sentiment,” which he hopes will ease the strain on Canadians' wallets.
“We expect customers to add more items to their baskets and upgrade,” Medline said.
“We are now more optimistic about the market and our prospects than we have been in a long time. We expect improvement to be gradual but steady.”
On an adjusted basis, Empire reported diluted earnings per share of 63 cents, down from adjusted diluted earnings per share of 72 cents a year ago.
This report by The Canadian Press was first published June 20, 2024.
Companies featured in this story: (TSX:EMP.A)
Sammy Hughes, The Canadian Press
