With little presence in the discount food market, IGA’s parent company, Empire, has seen its sales stagnate for months and finds itself lagging behind its main competitors. The lower-than-expected popularity of online grocery shopping is also forcing it to put the development of its Voilà service on hold.
Initially planned for 2025 in Vancouver, the opening of the fourth distribution center in Canada for Voilà, IGA’s online grocery service, has been suspended.
“The true size of Canada’s food e-commerce market is smaller than we anticipated. […] So we are losing more money than we had initially estimated,” explained Empire President and CEO Michael Medline after the publication of the fourth quarter results concluded on May 4.
Without specifying the date of the postponement, the pause will take place “until the overall penetration of e-commerce in food products increases”, he added.
The Nova Scotia company expected a penetration rate of 6 or 7%, but it currently stands at 4%.
At Metro, the diversification of online partnerships, notably with Instacart and Uber, is proving its worth according to other TD Bank analysts.
Empire management wishes to do the same by ending the exclusive partnership with Ocado, a company specializing in the automated processing of online orders, to allow greater flexibility for the customer.
Empire believes that these measures, combined with tighter cost controls, will have a significant positive impact on Voilà’s profitability in 2025.
“We remain optimistic, since we believe that Voilà will be a long-term beneficial solution in the online commerce sector,” said Mr. Medline.
During its 4th quarter ended May 4, Empire’s same-store sales increased just 0.2% compared to the same period last year. And this, despite inflation. This data excludes gasoline sales.
This increase is much more marked at Loblaws and Metro, Empire’s main competitors in Canada, whose same-store sales increased by 4.1% and 2.7% respectively during their fourth quarter.
For what ? Loblaws owns Maxi, while Metro owns Super C. Two large discount banners that are attractive in a context of inflationary pressure, according to analysts at TD Bank.
The province nevertheless represents an important market, since it constitutes 22% of the Canadian population, according to the most recent estimates from Statistics Canada.
According to the most recent surveys conducted by Nielsen, 89% of Canadian consumers are actively seeking lower prices on everyday consumer products.
“Empire simply does not have enough exposure to the discount chain sector for its same-store sales to maintain the same pace,” TD analysts said.
Nearly seven in ten Canadians deliberately change stores to reduce their food spending, according to Nielsen.
Michael Medline, however, believes he will be able to attract new customers to his food services.
“We do not envisage a strong increase in the number of customers before at least 2025, that is to say after a significant drop in interest rates,” concluded analysts at TD.
Empire’s total fourth-quarter sales reached 7.4 billion, about the same as a year ago. The company, also parent of the Sobeys and Safeway grocery chains, will now pay a quarterly dividend of 20 cents per share, up from 18.25 cents per share.
The news sent Empire shares up 5.4% on Thursday on the Toronto Stock Exchange.
For the entire financial year, turnover stood at 30.7 billion, an increase of 255 million.
