Annual Report 2019

Fresh Thinking

Two years into Empire Company Limited’s three-year Project Sunrise transformation plan, the Company is surpassing milestones and exceeding targets. The team continues to make tough decisions and stand behind them. In every area of its operations, Empire is shifting from an inward focus on fixing fundamentals to an outward, customer-centric focus on innovating with purpose and executing with much more velocity.

Empire Company Limited (TSX: EMP.A) is a Canadian company headquartered in Stellarton, Nova Scotia. Empire’s key businesses are food retailing and related real estate. With approximately $25.1 billion in annual sales and $9.6 billion in assets, Empire and its subsidiaries, franchisees and affiliates employ approximately 123,000 people.

Financial Highlights


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  • 2019


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  • 2019
  • (1)See “Non-GAAP Financial Measures & Financial Metrics” section of the Management’s Discussion and Analysis.
  • (2)Net of non-controlling interest.
52 weeks ended
($ in millions, except per share amounts) May 4, 2019 May 5, 2018 May 6, 2017
Sales $25,142.0 $24,214.6 $23,806.2
Operating income 652.3 346.5 333.0
Adjusted operating income(1) 683.6 601.7 378.5
EBITDA(1) 1,069.5 785.7 777.2
Adjusted EBITDA(1) 1,076.2 1,014.7 769.9
Net earnings(2) 387.3 159.5 158.5
per share (fully diluted) 1.42 0.59 0.58
Adjusted net earnings(1)(2) 410.0 344.3 191.3
per share (fully diluted) 1.50 1.27 0.70
Book value per common share(1) 14.72 13.62 13.40
Dividends per share 0.44 0.42 0.41
James M. Dickson

Message from the Chair

During fiscal 2019, the second year of our ambitious plan to transform Empire and return the Company to a position of strength, the Company delivered on its commitments to shareholders. I am very pleased to report that performance exceeded the Board’s expectations, particularly on key metrics such as Project Sunrise savings, tonnage growth, sales growth and margin expansion. Since our CEO Michael Medline joined the Company, Empire’s earnings per share and share price have each increased by more than 100%.

Quarter by quarter, with tenacity and unyielding commitment to our strategic plan, our Company has been setting in place the building blocks of a new Empire – a stronger platform to compete, to innovate and to win the next generation of grocery retail in Canada.

Those building blocks include significant progress on key strategic initiatives, such as the push west with our Company’s FreshCo banner where our first stores in British Columbia and Manitoba have opened to rave reviews from customers. Our exclusive agreement with Ocado to bring the world’s very best integrated grocery e-commerce platform to Canada – that we have branded Voilà – is on track to deliver its first orders to homes in the Greater Toronto Area in the spring of 2020, and construction of our second e-commerce site is already underway in Montreal.

These targeted strategic initiatives also included deliberate and bold moves such as our purchase of Farm Boy which allows us to close the urban gap we have in Ontario and turbo-charge our growth in this key market.

We also made important progress on key building blocks that may be somewhat less tangible, but are perhaps even more critical to Empire’s future. The continuing evolution of the senior leadership team under Michael Medline, the collaboration and strong execution of colleagues working nationally, and the renewed confidence and vigour of the broader team, have shifted our organization from struggling to be competitive, to playing a winning game.

As part of that shift, we have re-energized our focus on sustainability, where we are dedicating more resources to finding practical solutions for our customers, our Company and our business partners that will have long-standing benefits and positive impacts for our generation and the next.

As a small footnote to our progress, and a testament to the tremendous efforts of the whole team at Empire, we were thrilled to celebrate Michael Medline’s recognition in December as Canada’s CEO of the Year for 2018, awarded by The Globe and Mail’s Report on Business Magazine.

On the strength of a solid top line, margin discipline, and success in capturing the benefits of Project Sunrise on the bottom line in fiscal 2019, along with disciplined capital management, our Company is once again experiencing strong, consistent cash flow generation. This has allowed us to increase Empire’s quarterly dividend in the fourth quarter by nine per cent.

We have also announced a share buyback program and, in fiscal 2020, we will execute a normal course issuer bid with the intent to repurchase up to $100 million of Empire shares.

Effective Governance

With Project Sunrise progress well on track and ahead of schedule in many respects, the Board has determined that governance of the transformation should return to the strong oversight provided by our full Board and standing sub-committees. The work of our Transformation Oversight Committee, which has been in place the last two years and led extremely effectively by one of our Directors, Sue Lee, has contributed greatly to the success of our far-reaching transformation agenda. With the mandate of the Transformation Oversight Committee very well executed and essentially complete, the full Board, supported by our Audit, HR, and Corporate Governance committees, will provide guidance as management brings Project Sunrise home.

We are extraordinarily fortunate to have a Board that is highly engaged, experienced and diverse. The slate of directors we are proposing for election at this year’s annual general meeting consists of individuals with experience in the food business, retail, finance, e-commerce, consumer businesses and sustainability. All of our directors are independent except for our CEO. Ten of our independent directors have joined our Board within the past seven years. We continue to be proud of the fact that five of our 14 directors are female, exceeding our goal of engaging highly capable women in at least 30 per cent of Board seats. In addition, we are fortunate to include five members of the Sobey family, each of whom has, in the past, served in senior level positions within Empire or Sobeys.

The strong engagement of every team member, franchisee and affiliate in Empire’s and Sobeys’ operations, the unrelenting focus of our CEO and leaders across the Company to winning the future of grocery retail, and the keen involvement and ongoing commitment of the Sobey family to long-term value creation are the factors that will continue to differentiate us. These are the pillars of strength that have underpinned our success for the last 112 years, and the ones on which we will continue to build for the future.


James M. Dickson
Chair, Empire Company Limited
June 26, 2019

Michael Medline
President & Chief Executive Officer

Message from the CEO

Shifting to Offence.

Embracing the Future.

Empire has great momentum and we’re gaining speed. Through stronger execution and innovation, we are now in a position to win.

You’ve said Empire is ahead of where you expected to be at this point in the three-year transformation. What accomplishments would you highlight?

Our progress is evident on so many fronts. We added almost $1 billion in sales in fiscal 2019 with strong same-store sales. Our margins are solid and increasing. We’ve taken $300 million in costs out of the business to date and will exceed our Project Sunrise savings target. And we are closing the EBITDA gap on our competitors.

Beyond these key metrics, the accomplishment I am most encouraged by is the solid foundation we have created over the past two years. This is not the Company of two years ago – or even a year ago. We are national. We are brand focused. We are moving fast to meet the evolving needs of our customers. We are pursuing strategies to win the next generation of retail.

We have created the foundation on which we can confidently and purposefully grow our Company. We are already working on our next three-year strategic plan which will be just as audacious as our current plan. Canadians trust us and our brand. And the foundation we have built today will ensure innovation remains at the centre of everything we do in the future. Our people have worked incredibly hard to transform our great Company over the last few years. I am so proud to be their teammate.

We have one more year of tying off our Project Sunrise transformation goals, but we are already looking to the future and are well poised for growth.

sensory friendly shopping

Lori Rhyno, Sobeys District Operator for Pictou County & Truro, stands to the right of Jenny Tyler from Autism Nova Scotia, in the Nova Scotia Legislature Library following recognition by the Province. Lori and Tammy MacPhee, Sobeys District Operator for PEI, have received multiple awards for launching sensory-friendly shopping where store teams dim lights and minimize all sounds to provide a more welcoming environment for individuals with sensory challenges. The initiative is rolling out across the country.

You are someone who places great importance on brand and leveraging the strength of brand to build strong ties to customers. What progress has the team made this past year?

Since Sobeys was founded in 1907, we have remained steadfast in our commitment to Canadians. And I believe we are one of a few iconic Canadian brands that continues to reflect the bonds and aspirations of modern families. This summer, for example, we re-launched the Sobeys banner brand with the new tagline “Canada’s family grocery store” in TV and social media campaigns. It resonates with our customers and falls in line with the innate characteristics that differentiate Sobeys banner stores nationally from our competitors. This same work is being done for all our major banners, creating a family of unique brands but with shared bonds – just like a family.

In virtually every community across this country, Canadians look to us to be there for them. They have high expectations of us and we will remain committed to meeting those expectations across every one of our banners. We will continue to evolve our brand, and ensure we are doing everything possible to give customers compelling reasons to shop us first.

Speaking of community, what stands out for you in the way the Company invests in communities?

In Empire’s very fibre, support of the community is ingrained. That feeling emanates from the great Sobey family over our 112-year history. I think first and foremost of the amazing things our store, warehouse and office teammates do to give back – raising and donating funds, never hesitating to lend a helping hand. Proudly serving our communities is one of our most cherished values. From our Quebec IGA franchisees, customers and suppliers raising millions for the Fondation Charles Bruneau, to our wonderful partnership with Special Olympics Canada where our nutrition education programming is the first of its kind in the global movement, to year-round, community-by-community support for local food banks and meal programs, there are thousands of ways we show up to make a difference, week after week, year after year.

lakeshore farm boy

Co-CEOs Jean-Louis Bellemare and Jeff York of Farm Boy with Michael Medline, centre, outside Farm Boy Lakeshore in Toronto. To the far left and right are Farm Boy Senior Vice Presidents, Donny Milito and Shaun Linton.

How are you pursuing innovation to advance Empire’s strategic priorities?

We have a responsibility to never stop striving to be the most innovative and best executing retailer in Canada which is central to our vision and needs to be part of every aspect of our business. It’s happening on so many fronts. For example, we are pursuing targeted initiatives in data analytics and artificial intelligence to drive smarter merchandising decisions and more relevant customer communications, directly supporting our ability to win in our stores and bolster our brand. We are leveraging innovations in sustainability to get rid of plastics, reduce food waste and lower energy costs. We are partnering with global leaders in innovation – leveraging the world’s most advanced online grocery platform to launch our Voilà e-commerce solution in the Greater Toronto Area (GTA) in 2020 and then in Quebec. We are unleashing the innovative spirit of our 123,000 employees, embracing and elevating ideas such as sensory-friendly shopping – the award-winning initiative developed by two store operations leaders in Atlantic Canada, now rolling out nationally. This will be a long journey of innovation, but we are on the path.

When you talk about filling the urban gap, Farm Boy is part of the strategy in the GTA. Is the performance of those stores and Farm Boy expansion plans falling in line with your expectations?

Yes and yes. Co-CEOs Jean-Louis Bellemare and Jeff York have done an outstanding job driving Farm Boy expansion plans in Ontario, and the GTA in particular. Farm Boy sales in fiscal 2019 surpassed our expectations, validating the exceptional fit of this banner within the Empire group of companies. We have a winning format that will allow us to accelerate our growth in urban and suburban markets in Ontario. We continue to keep Farm Boy store operations very separate from Sobeys, but legions of loyal fans in the GTA will be able to order their much-loved Farm Boy private label products through our Voilà e-commerce solution when it launches next spring.

The FreshCo discount banner is also expanding – in this case to Western Canada. How are plans progressing on that front?

It is still early days, but we are extremely pleased with store performance and customer reaction so far. We launched our first FreshCo locations in Western Canada in April 2019, opening three stores in British Columbia, followed by two stores in Winnipeg in May, and our first two Chalo! FreshCo stores opened in British Columbia in July. Eleven more FreshCo stores are slated to open in Western Canada in fiscal 2020, as we continue on the path to converting 25% of our poorer performing Safeway and Sobeys stores to FreshCo locations in markets that are better suited to discount.

The Western Canadian stores are all branded with the distinctive new FreshCo 2.0 look and feel, and updated merchandising program, which are also being rolled out to all 95 FreshCo stores in Ontario with consistently positive customer response.

voilà delivery

Voilà delivery vehicles will be busy on routes throughout the GTA in the spring of 2020 when Empire introduces the world’s best e-commerce grocery platform to Canada. The branding was unveiled in May 2019 as the team continues to prepare for launch.

Do you have any final comments?

Innovation and execution are inextricably linked in our formula for success. We can have all of the greatest ideas and innovation in the world, but without equal emphasis on execution, we simply won’t deliver. We are working hard to build the infrastructure, the systems, the leaders, and the investments to ensure we are executing with purpose and speed against our vision. Now that we are positioned to grow, we are creating a culture of continuous improvement with a laser-like focus on the evolving needs of our customer. Our teams have never been stronger and more ready to tackle the changes happening in our industry. The future of grocery retail is at the end of that path. At Empire, we are aiming to get there first.

It is my sincere belief that we have the finest Board and Chairman, Jim Dickson, in the country. Their passion for our business, their ability to hold us accountable, to support the tough decisions we have had to make and their embrace of innovation have paved the way to our recent success. And thank you to our millions of loyal customers who shop us every week – they are the reason we must continue to execute and innovate.

Sincerely, (Signed)

Michael Medline
President & Chief Executive Officer
Empire Company Limited
June 26, 2019

Directors of Empire Company Limited

  • Cynthia Devine(2)(5)(7)

    Toronto, Ontario
    Director since 2013
    Chief Financial Officer, Maple Leaf Sports & Entertainment
  • James M. Dickson

    Halifax, Nova Scotia
    Director since 2015
    Chair of Empire Company Limited
    Counsel, Stewart McKelvey
  • Sharon Driscoll(1)

    Vancouver, British Columbia
    Director since 2018
    Chief Financial Officer,
    Ritchie Bros. Auctioneers Inc.
  • Gregory Josefowicz(3)

    Fennville, Michigan, USA
    Director since 2016
    Corporate Director
  • Sue Lee(3)

    Vancouver, British Columbia
    Director since 2014
    Corporate Director
  • William Linton(4)(5)(7)

    Toronto, Ontario
    Director since 2015
    Corporate Director
  • Michael Medline

    Toronto, Ontario
    Director since 2017
    President & Chief Executive Officer, Empire Company Limited and Sobeys Inc.
  • Martine Reardon(1)(5)(7)

    New York, New York, USA
    Director since 2017
    Corporate Director
  • Frank C. Sobey(5)

    Pictou County, Nova Scotia
    Director since 2007
    Corporate Director
  • John R. Sobey(1)

    Pictou County, Nova Scotia
    Director since 1979
    Corporate Director
  • Karl R. Sobey(3)

    Halifax, Nova Scotia
    Director since 2001
    Corporate Director
  • Paul D. Sobey(5)

    Pictou County, Nova Scotia
    Director since 1993
    Corporate Director
  • Rob G.C. Sobey(3)(5)

    Stellarton, Nova Scotia
    Director since 1998
    Corporate Director
  • Martine Turcotte(1)(6)(8)

    Verdun, Québec
    Director since 2012
    Vice Chair, Québec, BCE Inc. and Bell Canada
  • (1)Audit Committee member
  • (2)Audit Committee chair
  • (3)Human Resources Committee member
  • (4)Human Resources Committee chair
  • (5)Corporate Governance Committee member
  • (6)Corporate Governance Committee chair
  • (7)Nominating Committee member
  • (8)Nominating Committee chair
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