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Empire Dials Back E-Commerce Plans to Focus on Bottom Line

The Canadian retailer is also cutting its mutual exclusivity with Ocado.
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voila sobeys

Sobeys parent company Empire Co. Ltd. has paused plans to open its fourth Customer Fulfillment Centre (CFC) as it re-strategizes its e-commerce approach in a push to improve profitability.

The Vancouver facility, to be powered by Ocado technology, was due to launch in 2025

“The current size of the grocery e-commerce market in Canada is smaller than we, or anyone for that matter, had anticipated,” Michael Medline, president and CEO of Empire and Sobeys Inc., said in a conference call with analysts on June 20.

“The plan was that the rapid growth in grocery e-commerce penetration would result in increased profitability at our active CFCs, and this would compensate for the initial operating losses from the newly opened CFCs. But due to the smaller overall market and the slower rate of growth, this has not been the case. So, we're losing more money than we had initially estimated, and this is actually masking the strength of our bricks-and-mortar business.”

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Medline said the parent company of Sobeys, Safeway, FreshCo and other retail banners is taking steps to address higher than expected dilution from its online grocery shopping platform Voila. 

“We want to focus on driving performance and volume on our three active CFCs before we open CFC four,” he said. “This pause will allow us to continue focusing our efforts on the strong momentum we are seeing with our active CFCs, rather than the time consuming activities associated with launching a new CFC. As soon as we see higher e-commerce penetration rates in Canada, we will be in a position to make a decision quickly on when we'll proceed with opening CFC four.” 

Construction on the exterior of the building is complete.

Empire also announced that it is ending its mutual exclusivity with British grocery tech company Ocado, which will result in a one-time charge of 12 million Canadian dollars.

“Ending exclusivity is going to allow us the opportunity to pursue complementary growth opportunities in the market, including serving more types of customer trips and having access to a larger segment of the market,” Medline said. “We're in conversations with partners outside of the Voila universe to be able to compete in other ways, not just through our CFCs. At the same time, we also believe that we'll be able to bring some of these customers into the Voila environment because it's such a great service as well. In the next couple quarters, you're going to hear more about that.”

Medline said he hasn’t lost confidence in grocery e-commerce. 

“We're not waiting for the economy. We're not waiting for anything. We are doing all sorts of things to make e-commerce more profitable for us, and not just waiting for that, but that will come. The solution is fantastic. Customers love it, we'll do well, but we can't wait for that. We owe it to our investors to become much more profitable year after year and then make this one of our best businesses in terms of returns. So that's what we’re aiming at.”

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