Sobey’s parent Empire lags in grocery wars

Canada’s Big Three grocers are having another strong year.

Last week we took a look at Loblaw and Metro. Today we take a look at Empire, Canada’s second largest grocer. It has the fewest discount stores and has struggled to capture the spending as Canadians ‘shop down’ to stretch their grocery spending.

As a result, Empire’s shares are up 13% in the last 12 months, lagging Loblaw and Metro by a wide margin.

Here’s a closer look:

Empire Company (TSX: EMP.A) Recent close $41.98

Background: Nova Scotia-based Empire Co. is Canada’s second-largest grocer and the parent of the Sobey’s and Safeway. It also owns FreshCo, IGA, Thrifty’s, Farm Boy, and the Lawton Drug Stores chains. In 2021, it bought 51% of Ontario-based Longo’s. It also owns 41.5% of Crombie REIT, which in turn owns many of its supermarket sites. It owns 350 gas stations in 10 provinces.

Performance: The shares are up 20% year-to-date.

Discussion: Empire’s 2013 takeover of Safeway was messy, costing the CEO his job and eventually leading to a $1.6 billion writedown in 2016. The company has since worked to streamline operations with some success. It has repositioned FreshCo as a discount brand, but as only 10% of all its stores are discount brands, it has not been able to capture the same upside as Metro and Loblaw.

In June Empire paused the opening of a fourth customer fulfillment centre in Vancouver to focus on improving efficiencies at its other three. Kathleen Wong, an analyst at Veritas Research in Toronto, notes Empire’s same store sales growth has lagged Metro and Loblaw for 10 consecutive quarters.

 In a research note, RBC Capital Markets analyst Irene Nattel says Empire’s disadvantage as a full-service operator should moderate over time. She has a sector perform recommendation with a price target of $46.

Dividend: Empire  raised its dividend 11% to $0.20 quarterly with the July payment. It yields 1.9%.