Empire suspends the opening of a fourth fulfillment center in Vancouver, citing a smaller e-commerce market for groceries in Canada than the company anticipated when its platform launched online delivery Here it is in 2020.
Empire President and CEO Michael Medline says the company is losing more money than it initially estimated when it launched its first three warehouses in the Toronto and Montreal areas and Rocky View County, Alberta.
“It actually masks the strength of our physical presence,” he told analysts on the Nova Scotia-based company’s fourth-quarter earnings call Thursday.
Mr. Medline said Empire had planned a phased schedule for the opening of its various distribution centers, in order to protect its profitability levels. He said the company hoped “rapid growth” in grocery e-commerce would offset initial operating losses at distribution centers.
But the three existing warehouses are still losing money, said Chief Financial Officer Matt Reindel.
“It’s completely within our expectations, but they’re all moving in the right direction,” he said.
In addition to halting plans for a fourth location, Medline said Empire was ending the mutual exclusivity agreement the company signed in 2018 with British online grocery company Ocado to use its e-commerce platform.
Due to the early termination of the deal, he said Empire will have to pay a one-time charge of $11.9 million next quarter, which he said will be offset by expected savings.
“We’re doing all kinds of things to make e-commerce more profitable for us,” Medline said. But we can’t wait. We owe it to our investors to become much more profitable year after year and then make this one of our best performing segments. »
Medline said he has two theories as to why food e-commerce hasn’t taken off in Canada in the same way it has in the United States and the United Kingdom.
He said there is already “great competition” in Canada between brick-and-mortar stores, which serve customers well.
The second reason, which he says is open to debate, is that food e-commerce had an initial rough patch at the start of the COVID-19 pandemic.
Medline cited “terrible” deals and substitutions and other hiccups when “Canadians really needed to rely on grocery e-commerce during the worst days of the pandemic.”
“People were just trying to get food to people in crisis. I think it hurt the brand,” he noted.
The parent company of grocery chains Safeway and Sobeys, with banners including IGA and Rachelle Béry, announced Thursday that it will now pay a quarterly dividend of 20 cents per share, up from 18.25 cents per share.
The food giant on Thursday reported earnings of $148.9 million, or 61 cents per share, for its quarter that ended May 4.
That was down from a profit of 182.9 million, or 72 cents per share, a year earlier.
Sales for the quarter totaled 7.4 billion, about the same as a year ago.
Same-store sales decreased 0.3% from the same quarter last year, while same-store sales, excluding fuel sales, increased 0.2%.
Irene Nattel, an analyst at RBC Dominion Securities, said in a note that the results were in line with expectations as “value-seeking consumer behavior continues to be a headwind.”
Medline said consumer confidence remained weak during the quarter due to a “hangover” from inflation and high interest rates. Shoppers remained cautious with their spending, it said, even as food inflation continued its downward trend to reach 1.4% in April.
He said the Bank of Canada’s decision earlier this month to lower its key interest rate “represents the beginning of a turning point in improving customer confidence,” with hopes that Canadians will feel less pressure on their wallets.
“We expect to see customers add more items to their carts and look for added value,” Medline said. We are currently more optimistic about the market and our prospects than we have been in a long time. We expect improvements to be gradual, but inexorable. »
On an adjusted basis, Empire said it earned 63 cents per diluted share, down from adjusted earnings of 72 cents per diluted share a year ago.
