Empire Corp., parent of grocer Sobeys, is slowing the pace of its e-commerce expansion and ending an exclusive partnership with technology provider Ocado Group as it seeks to improve the profitability of its online service, Voilà.
The company is delaying the opening of a fourth distribution centre in Vancouver, which was planned to serve Voilà customers in the region, and Empire will focus on improving the performance of its three other distribution centres in Ontario, Quebec and Alberta, President and CEO Michael Medline said in a statement Thursday.
Voila continues to report sales growth, up 17.3% on a same-store basis in the fourth quarter — a rise that's not tied to expansion into new geographies — but Empire is working to reduce the costs of running its service.
Voilà opened a distribution centre north of Toronto in 2020, marking its first launch with robotics technology provided by UK-based Ocado in an exclusive deal for the Canadian market. (Ocado also operates e-commerce services in the UK and partners with grocers in other countries for the facilities.)
Since launching amid a pandemic-induced boom in e-commerce grocery sales, the overall size and growth of Canada's online grocery market was smaller than Empire expected, and net income dilution was also larger than expected.
Medline said in a statement on Thursday that the end of its exclusivity agreement with Ocado “will give us more flexibility to serve a broader range of customers,” adding that the company is “very optimistic” about the business. Empire will take a one-time charge of $11.9 million in the first quarter related to the termination of the agreement.
“We remain focused on growing profits, including taking aggressive steps to improve Voila's bottom line,” Medline said in a statement.
The Stellarton, Nova Scotia-based grocer reported a profit decline Thursday and also announced a 9.6 percent annualized increase in its quarterly dividend to 20 cents a share.
Empire's net income was $148.9 million, or 61 cents a share, for the fourth quarter ended May 4, down from $182.9 million, or 72 cents a share, a year earlier.
There were a number of factors that impacted net income for the quarter, including a $10.4 million increase from insurance recoveries related to a cyberattack in 2022, a $7 million decrease related to the integration of the Grocery Gateway business into Voilà last year, and a $15.5 million decrease related to cost-reduction initiatives, including organizational changes and employee buyouts. Adjusted net income decreased to $154 million, or 63 cents per share, from $184.9 million, or 72 cents per share, a year ago.
Empire's profit margins have improved as the company has improved operations at chains such as Sobeys and Safeway, reduced supply chain costs by distributing goods more efficiently and expanded into businesses such as discount grocery chain FreshCo, Voila and upscale chain Farm Boy. Gross margins rose to 27.1% from 26.4% in the same period last year.
Fourth quarter sales were essentially flat, increasing 0.4% to $7.4 billion. Sales growth was led by Freshco, Farm Boy and Voila. Offsetting this growth was a decrease in fuel sales due to the sale of Empire's gas stations across Western Canada to Shell Canada subsidiary Canadian Mobility Services Inc. for $100 million. The transaction closed in July 2023.
For the full year ended May 4, Empire's profit rose to $725.2 million, or $2.92 per share, from $686 million, or $2.64 per share, a year earlier. On an adjusted basis, profit fell to $681.6 million, or $2.74 per share, from $727.1 million, or $2.80 per share, a year earlier.
Empire plans to cut capital spending slightly next fiscal year to about $700 million this year from $831.4 million in fiscal 2024, about half of which will go toward remodeling stores and building new ones. The company aims to have remodeled 20% to 25% of its stores by the end of fiscal 2026.
