Perspectives

Grocery: A disrupted industry ready for the future

a person pushing a shopping cart in a grocery store

The disruption in the grocery industry by COVID-19 is permanently transforming the way we shop, according to one of Canada’s leading grocery CEOs, Michael Medline. Medline is President and CEO of Empire Company Limited and its wholly owned subsidiary Sobeys Inc.

“We’ve seen a lot a change,” he says. “We are seeing basket sizes that we have never seen before. We have tripled since before the pandemic in baskets that are $100 and above. We are seeing growth in online sales across the country that we have never seen before.”

Medline was speaking as part of National Capital Markets’ event series Market Movers—a forum for Canadian CEOs to discuss timely and important industry topics.

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The event focused on the future of the grocery industry amid the turmoil of the global pandemic and followed the launch of Voilà by Sobeys—the first e-commerce grocery platform in the country, which is unlike anything seen in North America.

Medline was joined by agri-food expert Dr. Sylvain Charlebois of Dalhousie University. Sarah Young, Managing Partner at National Atlantic, introduced the panel and Andrea Mandel-Campbell, Senior Vice-President of National Capital Markets, moderated the event.

Revolutionary move to e-commerce

Sobeys’ new e-commerce platform, Voilà, is powered by an exclusive partnership with Ocado, using its industry-leading technology and state-of-the-art automated warehouse to enable grocery delivery with the freshness, quality and accuracy of order that consumers have come to expect.

“It was the only thing in my business career, that when I heard it, I knew we had to have,” Medline says. “Some things are just game changers. When you see them—you know right away.”

There are many great features of Ocado’s technology, but its scalability was the lynchpin for Medline. “Store pick isn’t scalable,” he says. “We do a great job of store picking in Quebec, but there’s nothing like the Voilà solution.”

Voilà is available in Vaughan now, and by the end of the summer everyone in the Greater Toronto Area will have access. Montreal is expected to be the next market.

Medline says the timing couldn’t have been better. “The world has turned towards e-commerce in a way we never even expected.”

Charlebois agrees and says e-commerce has only been helped by COVID-19. “E-commerce is going to be COVID-19’s most significant legacy. Everybody is looking at e-commerce as an option.”

Medline expects a strong uptake as Voilà finally gives customers the solution they’ve been looking for.

“Before COVID-19, we were expecting about one and a half percent of the market. I think it will go where it would have gone in three years—around five percent—very quickly,” says Medline.

Voilà is expected to be profitable in just two years, a very short timeline in any business let alone this kind of business.

And while e-commerce is the highest growth area for his sector, Medline says brick and mortar stores are here to stay and will continue to generate the most profits.

Rising profits but also rising costs

Sobeys’ profits have soared since the pandemic—an 18 percent increase in same store sales in its fourth quarter and up 13 percent in May and the first two weeks of June over last year.

The company has also seen increased costs as a result of several factors, including employing additional people to keep stores safe and stocked with goods, a much higher level of sanitization, and purchasing and supplying personal protective equipment to employees.

Suppliers are facing similar increased costs, says Medline, who plans to push back where he can.

“We’re not going to pass these costs on to customers,” he says. “It’s our job, especially knowing how many Canadians are hurting out there, to not let that happen.”

Looking more broadly, Charlebois sees COVID-19 forcing prices higher as it now costs so much more to do everything from “farm to fork”.

“Those financial pressures are going to have a huge impact on the entire grocery industry,” he says.

Hero pay

Another cost on the ledger was the introduction of “hero pay”. The grocery chains announced in late March increases in wages for their frontline workers who were working during the pandemic. Sobeys gave $50 to every employee and $2 an hour for staff working more than 20 hours a week.

Sobeys and other grocery retailers have drawn the ire of some Canadians for ending the program.

Medline says he was proud to pay the increased wages longer than most companies, noting that Sobeys spent $100 million on the three-month program. His company employs 127,000 people.

It was always a temporary program, Medline reminded the audience. “We felt it was time to phase it out,” he says. “The economy is reopening. We saw slowing of COVID-19 cases.”

Charlebois says grocers were well-intentioned but to increase salaries by 10 to 15 percent is unsustainable for the industry.

“I do believe there is this collective call for change in how we recognize our workers in grocery stores,” he says. “The real question that we have to ask ourselves as consumers: are we willing to pay more for our food in order to make sure these people earn a decent wage?”

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