The head of one of Canada’s largest grocery chains says he’s seeing the early signs of consumer behaviour normalizing after years of trading down and cutting back in the cost of living crunch.
Michael Medline, CEO of Sobeys parent company Empire Co., told analysts on the company’s earnings call Thursday that the past quarter saw “small, gradual improvements” in consumer activity across the company’s national banner of grocers.
Foot traffic in Empire’s stores, which also include FreshCo and Farm Boy, continues to grow, Medline said, and the company is seeing smaller declines in average basket size.
“Promotional penetration” is also flattening after multiple quarters of gains, he said.
Empire COO Pierre St-Laurent noted that there are signs of consumer “appetite” returning for fresh foods.
“When we looked at consumer trends over the past quarter, we’re seeing several early indications that customers are returning to a more favourable and predictable shopping behaviour,” Medline said.
“While it will still take time for stretched customers to fully return to the more typical purchasing behaviours, these actions are translating into the very early innings of positive sales activity for Empire.”
Medline pointed to easing inflation at the grocery store as helping to drive the upticks last quarter, which saw Empire’s revenue rise year-over-year even as profit fell.
Overall inflation has continued to cool in Canada this year, with annual price hikes at the grocery store easing to 2.1 per cent in July. But sticky pressures, particularly on rent and mortgage costs, also need to cool before consumer behaviour returns to historic norms, Medline said.
“We needed inflation to get back down to normal levels — it has — and we need to continue to see interest rates fall, because we need Canadians to feel better about the economy and not be as affected by certain things like shelter costs,” he said.
Recent Ipsos polling exclusively for Global News shows that many consumers are continuing to cut back at the grocery store.
Some 43 per cent of respondents to a poll conducted Aug. 23-27 said they’re worried about having enough money to feed their families. While that figures is down 10 percentage points from last year, it still rises to 54 per cent among parents.
Just over half (51 per cent) said they’re looking at flyers for sales, while a third said they’re couponing and 28 per cent are shopping at another grocery store to save money. Some 28 per cent said they’re buying less fresh fruits and vegetables, while 27 per cent are buying less meat.
Medline clarified to analysts that Empire is “under no misconception that this is a hearty economy,” noting there was a long way to go before the cost-of-living crisis is in the rear view.
“We’re not popping champagne,” he said.
Empire pauses new fulfilment centre
Empire Co. Ltd. said Thursday it earned $207.8 million in its latest quarter, down from $261 million a year ago as its sales edged higher.
“We are increasingly optimistic as market conditions are gradually improving, contributing to a more predictable operating environment,” said Medline in a press release.
However, Empire is hitting pause on a new fulfilment centre to help save costs in its grocery delivery business Voilà, among other changes.
“While the market penetration of Voilà continues to be strong, the size and growth of the Canadian grocery e-commerce market is smaller than anticipated, resulting in higher net earnings dilution than originally estimated,” Empire said in the release.
The company says it’s focusing on driving volume and performance at its three existing centres.
Empire also prematurely ended its mutual exclusivity agreement with technology provider Ocado, as part of changes it’s made to lower costs and increase flexibility.
The changes “are expected to have a significant, positive impact on Voilà’s profitability in fiscal 2025 and 2026,” Empire said.
The parent company of the Sobeys grocery chain says its profit amounted to 86 cents per diluted share for the 13-week period ended Aug. 3.
The result was down from a profit of $1.03 per diluted share in the same quarter last year when its bottom line was boosted by the sale of 56 gas stations in Western Canada.
Medline said the company’s strategic initiatives are gaining traction and delivering results. Over the past several years, Empire has been investing in renovations, converting some of its traditional stores into its discount brands and opening new stores as well as other improvements to its network.
“Investing in the store network will remain a priority, demonstrated by a sustained emphasis on renovations and continued store expansion in discount,” the company said in its press release.
On an adjusted basis, Empire says it earned 90 cents per share in its latest quarter, up from an adjusted profit of 78 cents per diluted share in the same quarter last year.
Sales for what was the company’s first quarter totalled $8.14 billion, up from $8.08 billion a year earlier.
Same-store sales for the quarter were up 0.5 per cent, while same-store sales, excluding fuel, increased one per cent.
RBC analyst Irene Nattel said Empire’s operating results came in “a tick above forecast as consumer value-seeking behaviour stabilizes.”
She said the company continues to execute on its strategy to maximize revenue in its full-service stores, despite the broader momentum in discount stores, though she noted Empire is also growing its discount presence.
— with files from The Canadian Press’s Rosa Saba