Thursday, March 16, 2017
By Peter Diekmeyer
Michael Medline, CEO at Sobeys’ parent, Empire Company Limited, used Wednesday morning’s third-quarter earnings call to outline his strategy for turning around the struggling grocer.
“I am an impatient person,” said Medline, who took the helm at Empire in January following a 15-year stint at Canadian Tire. “We have not delivered to shareholders the way they deserved. The fastest way to do that is on the cost side.”
Empire reported that same store sales, which Medline identified as a key operational metric that you “can’t cheat,” fell by 3.7 per cent during the quarter. Overall sales and gross profits have also declined significantly, both for the quarter and year-to-date.
A four-part strategy
Medline immediately provided analysts with a tangible signal that there was a new boss in town, by bypassing a review of the operational numbers, which he said could be easily looked up. Instead he used the call to outline a four-part revitalization strategy:
- Medline’s first priority will be to address what he called a “Byzantine” organizational structure, which has created “complexity and duplications.” The goal is to better leverage its $24-billion scale.”
The grocer’s regional structure and silos across its various banners, including Sobeys itself, are hampering efforts to streamline efficiency, Medline said. Empire will also put CAPEX budgets “under a microscope,” due in part to disappointing returns on recent outlays.
- The second strategy component will be to “take costs out of the business,” with an eye to boosting productivity.
- Thirdly, Medline will focus on various Empire brands to get a better understanding of its customers and the effectiveness of its marketing approaches. “It’s not that we don’t have (customer) data. In fact, we are quite good at that,” said Medline, who pledged to dispense with Sobeys’ existing “Simplified Buy & Sell” terminology. “But we need to go beyond price. Customers want a value proposition of which price is just one component.”
Medline also provided strong backing for the controversial Air Miles program, which has gotten bad press recently. “I have met with our partners and am convinced that (they are) on track,” said Medline. “Our customers are very loyal to Air Miles.”
- And finally, Medline pledged to address Empire’s western Canada operations, which have been struggling since the acquisition of the Safeway banner in 2013.
A FreshCo solution going forward?
Medline was quite positive regarding Empire’s 88-store FreshCo discount banner. “We have not bragged enough about how well FreshCo is doing in Ontario,” said Medline. “We are very pleased.”
That said, expanding FreshCo to western Canada would be a “tough decision,” Medline said. “We need to be sure there is space in those markets. We (also) have to be very cautious about how we deploy capital.”