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'Consumer sentiment is improving,' despite economic concerns: Empire CEO

Calgary, Alberta, Canada. May 9, 2023. A Sobeys grocery supermarket main entrance.
Empire CEO says "consumer sentiment is improving", despite concerns about the strength of the Canadian economy. (Getty Images) (Marvin Samuel Tolentino Pineda via Getty Images)

Empire CEO Michael Medline said the grocery retailer is seeing early indications that consumer sentiment is improving, “returning to more favourable and predictable shopping behaviour,” despite a struggling Canadian economy.

On a conference call with analysts on Thursday following the release of quarterly results, Medline noted that although this is not yet a strong economy, nor a strong consumer environment, the grocery retailer has started to see market conditions gradually improve, particularly when it comes to consumer behaviour. Medline noted that at Empire – which operates several grocery brands including Sobeys, IGA, FreshCo and Safeway – customer traffic has continued to grow, average basket size has declined at a smaller pace, and the average number of grocery stores Canadians are shopping at has dropped. Promotional penetration has also flattened, after several quarters of growth.

“These are all early indicators that consumer sentiment is improving, and while it will still take time for stretched customers to fully return to the more typical purchasing behaviors, these factors are translating into the very early innings of positive sales momentum for Empire,” Medline said.

“We are under no misconception that this is a hearty economy. This is not a good economy for Canadians… At the same time, as I said, we are seeing small, gradual improvements in the consumers that we service across every single one of our businesses.”

A higher cost of living has seen many Canadian shoppers turn to discount brands in a bid to find savings. The cost of food purchased from grocery stores increased as much as 11.4 per cent annually (in Sept. 2022, Nov. 2022, and Jan. 2023), pushing many consumers to discount brands. As a result, companies – Loblaw in particular – have converted many conventional stores into discount banners. While Empire has expanded its FreshCo banner, it has also focused on its full-service brands, including opening more Farm Boy locations.

The higher costs also prompted many Canadians to cut back when shopping, trading down in more expensive categories like meat. But Empire’s chief operating officer Pierre St-Laurent said on Thursday that fresh food purchases have been trending up in the last month.

Grocery price increases have also eased in recent months, rising 2.1 per cent annually in July. Medline said the more stable food inflation rate has contributed to a more predictable operating environment for Empire.

He also noted that in order to see further improvement interest rates need to continue to come down and the macroeconomic environment needs to improve. An improving economy will be “advantageous” to Empire as it will “lean into our strengths as a full-service grocer.”

“But if we can see a much better economy, we expect to continue to perform more strongly than this,” Medline said.

The Bank of Canada started cutting interest rates this summer, issuing three consecutive cuts and bringing its benchmark policy rate to 4.25 per cent last week. Analysts expect more cuts through the end of the year, amid concerns about weaker-than-expected economic growth and rising slack in the labour market.

Empire reported adjusted net earnings of $218.7 million, or 90 cents per share, compared to $196.2 million, or 78 cents per share. The adjustments included a non-cash charge related to ending its exclusive partnership with Ocado, following a decision to scale back investments in its e-commerce business Voila. Also included was an adjustment for restructuring expenses.

​​Empire’s stock closed the trading day on Thursday up nearly 6 per cent.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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