Grocery retailer Empire Co. Ltd. EMP-A-T +3.04%increase wants to compete more for price-sensitive Canadian shoppers, with plans to open dozens of new discount stores in the coming years.
The Stellarton, N.S.-based retailer, which owns chains including Sobeys, Safeway, IGA, Farm Boy and FreshCo, announced on Thursday that it is accelerating investments in its store network. The company will open 20 new stores in the current fiscal year, and a total of 70 new locations over the next three years. More than three-quarters of those will be discount stores.
“We have a lot of room to grow in discount, without cannibalization of our network,” said president and chief executive officer Pierre St-Laurent on a conference call Thursday to discuss the company’s fourth-quarter earnings.
Canadians, who have been grappling with food affordability and stubborn inflation, have been increasingly turning to discount stores in an attempt to rein in household budgets. More recently, rising gas prices spurred by the conflict in the Middle East have also affected consumer confidence.
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Mr. St-Laurent said he is hoping the initial deal to end the war, signed by the United States and Iran on Wednesday, will lead to lower fuel prices that will provide some relief to consumers.
Empire opened five new stores in its fourth quarter, four of which were discount FreshCo locations. Its plans include expanding the FreshCo banner in Atlantic Canada.
Including renovations and store conversions, Empire plans to complete 90 real estate projects annually, an increase of 25 per cent compared to fiscal 2025 and 2026, Mr. St-Laurent said.
In addition to the discount expansion, Empire has long-term plans to expand its pharmacy business, including by adding more pharmacy locations to grocery stores as they are renovated. Empire owns the Lawtons drugstore chain in Atlantic Canada, as well as operating pharmacies inside some of its existing grocery stores. That part of the business was not a focus for the company in the past, but represents a “meaningful opportunity” for future growth, Mr. St-Laurent said.
On Thursday, Empire reported higher sales and profits in the fourth quarter ended May 2 and increased its quarterly dividend paid to shareholders.
The company saw sales increase in both its discount and conventional grocery banners. Profits jumped by 22.5 per cent as the stores continued to make progress on “efficiencies,” including preventing food waste and offering a better mix of promotions.
The company reported net earnings of $212-million or 94 cents per share, compared with $173-million or 74 cents in the same period last year. That beat analysts’ expectations of $199-million or 87 cents, according to consensus estimates from S&P Capital IQ.
Sales grew to $7.8-billion in the quarter, up 2.2 per cent compared with the same period last year.
At the grocery stores, same-store sales – an important industry metric that tracks sales growth excluding the impact of newly opened locations – grew by 1.5 per cent year-over-year.
The company announced it will raise its quarterly dividend to 24.25 cents per share, up from 22 cents.
Empire is continuing to fight cost-increase requests from its suppliers, who have been asking retailers across the industry to help them offset the effect of higher fuel prices caused by the Middle East conflict.
“Consistent with our approach on tariffs, we are pushing back on fuel-related surcharges,” Mr. St-Laurent said during the call, referring to similar cost-increase requests that came last year after Canadian counter-tariffs on U.S. imports, applied in reaction to the Trump administration’s tariffs on Canadian goods, also put pressure on the cost of food.
The pushback has helped to keep Empire’s price increases lower than overall food inflation in Canada, according to the company.
“We know many consumers remain stretched,” Mr. St-Laurent said.
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The Globe and Mail first reported in April that suppliers such as Maple Leaf Foods Inc., Tree of Life and Unilever PLC had told grocers they planned to apply either surcharges or overall cost increases amid the surge in fuel prices.
Competitors Loblaw Cos. Ltd. L-T +0.32%increase and Metro Inc.MRU-T +0.27%increase have also previously said they were declining these requests – a pattern that has raised concerns among small independent grocers about an imbalance in the industry, as they lack the size and market power to push back in the same way.
“We’re not accepting anything,” chief customer officer, Luc L’Archevêque, said during the call.
Earlier this year, the company shut down its Voilà e-commerce facilities in Alberta and took a $746-million writedown on the business after the financial results from its e-commerce strategy fell short of expectations.
Since ending its exclusive relationship with e-commerce technology partner Ocado, Empire has struck new partnerships with third-party delivery services Instacart, Uber Eats and Door Dash, which contributed to 6-per-cent e-commerce sales growth in the fourth quarter.
Online sales growth lagged competitors during the quarter, and slowed because of the Alberta closings, Mr. St-Laurent said. He added that Empire is expecting the economics of its e-commerce business to improve in the year ahead.
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