Yahoo Finance Sobeys parent Empire scaling back e-commerce investment amid profitability woes
Empire (EMP-A.TO) is scaling back its investments in its e-commerce business Voilà, pausing the opening of a fulfilment centre in Vancouver, and ending an exclusive agreement with technology provider Ocado, as the business struggles to be profitable.
Empire, which operates Sobeys, Safeway, FreshCo and Farm Boy brands, says it would pause the opening of its fourth Voilà customer fulfilment centre (CFC) and focus on its existing centres in Toronto, Montreal and Calgary. The company says construction on the Vancouver centre has "substantially" finished, although internal work on the grid and robot commissioning – provided and operated by Ocado – has not started.
"As we have stated several times over the past two years, the current size of the grocery e-commerce market in Canada is smaller than we, or anyone for that matter, had anticipated," Empire chief executive Michael Medline said on a conference call with analysts on Thursday, noting that the company's business model included a phased opening of fulfilment centres across the country "designed to protect Empire's profitability levels while expanding quickly."
"This has not been the case. We're losing more money than we had initially estimated, and this is actually masking the strength of our brick and mortar business. As a result, we are taking several immediate actions to address the higher-than-expected dilution from Voilà and quickly improve performance."
In addition to the opening pause in Vancouver, Empire has also ended its exclusive partnership with Ocado, the technology group that provides and operates the automated CFCs. The termination will result in a one-time charge of $11.9 million for Empire.
The news sent Ocado Group's shares tumbling on Thursday, closing down 12 per cent on the London Stock Exchange. Empire shares, meanwhile, jumped as much as eight per cent. Its stock was up around five per cent in midday trading on the Toronto Stock Exchange.
Empire first launched its grocery delivery service Voilà in 2020, delivering products from automated fulfilment centres dedicated solely to online orders.
While sales have grown at Voilà – Empire says sales increased 23.5 per cent in the fourth quarter ending May 4 compared to the same time last year – that growth has been slower than expected. Medline says grocery e-commerce penetration is at four per cent, and while he did not disclose what penetration rates would lead to profitability, he says "at six to seven per cent, we're all going to be happy, us and our shareholders."
"We remain extremely pleased with Voilà, and continue to believe that this is the best grocery e-commerce solution in Canada, and that it will be attractively profitable in the medium and long term," Medline said.
"Customers love it. We just need more people trying it."
Empire sales were essentially flat compared to last year, coming in at $7.4 billion in the fourth quarter. The company reported a profit of $148.9 million, or 61 cents per diluted share, in the fourth quarter of the year, down from $182.9 million, or 72 cents per diluted share, last year.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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