Larger baskets, one-stop shopping fuels sales growth at Empire

Basket size increased significantly in Empire's fourth quarter as customers favoured one-stop shopping during the pandemic, says Michael Medline, a behaviour he believes will continue for the foreseeable future.

Though transactions are down, there was a significant shift in basket size since the start of the COVID-19 pandemic,  said Medline, the CEO of Empire Companies Limited, which owns Sobeys, FreshCo, IGA and Farm Boy.

READ: Michael Medline gets candid on COVID

The number of customers with baskets totalling more than $100 has tripled, Medline said during a call with analysts Thursday afternoon. He also said Empire believed COVID may have caused a permanent shift in consumer shopping habits.

"We're not soothsayers, but it's our belief that many Canadians will continue to favour one-stop shops more than any time in the recent past, making the future look quite different than the past," said Medline.

In the fourth quarter, same-store sales growth at its discount banner FreshCo equalled Empire's full-service banners, said Medline. Both formats performed extremely well in the early days of the pandemic, but as time progressed, sales at conventional outpaced discount.

While consumers turned to discount in the economic downturn of 2008-2009, Medline said full-service grocery stores are "much more sharply priced now" and predicted full service would grow faster than discount "in at least the short to medium term" as shoppers seek a healthy, safe one-stop shop.

Medline also said he believed customer loyalty would go to the grocery chains that continued to invest in safety and sanitation. "Retailers that do the right thing and don't let up on their important protocols will be preferred by customers," he said. "We are committed at Empire not to let our guard down."

Empire's fourth quarter also marked the completion of Project Sunrise--the grocery company's multi-year, restructuring plan that kicked off in 2017 in an effort to turnaround its business after missteps like the disappointing 2013 Safeway acquisition.

Through Project Sunrise, Empire has strengthened its leadership, leveraged its purchasing scale and "assessed every single category ... to ensure our shelves are stocked with the items customers want most," said Medline.

The strategy yielded $550 million in savings, Medline said. "There are very few Canadian retailers that have executed the transformation of this size with this level of success," he said.

Medline said there was "still substantial value to extract from the business" and a new, "bold ambition" would be announced in July.

Though Farm Boy continues to be an important "weapon" for winning urban market share, sales dropped at the start of the COVID-19 pandemic, in part because the chain is so reliant on prepared foods. Many grocers closed their cold bars, hot bars and in-store dining areas for health reasons at the outset of COVID-19, and Farm Boy was no exception.

"However, the exceptional leadership team at Farm Boy was able to think creatively to adapt their stores and offerings to continue to serve their loyal customers," he said.