Strong first quarter from Sobeys as Project Horizon gets underway

Stewart Samuel
Program Director - Canada
@RetailAnalysis

Date : 11 September 2020

We look at the’ first quarter performance of Canada's second largest food retailer as its Project Horizon growth plan gets underway.

Q1 key numbers

  • Sales up 9.0% to $7.4bn
  • Same-store sales increased 11.0%
  • Sales through its existing ecommerce operations in Quebec and BC increased approximately 370%. During the quarter it launched its Voilà by Sobeys service in the Greater Toronto Area (GTA) in partnership with Ocado
  • Net earnings up 47% to $191.9m
  • Same-store sales are currently ranging between 8% and 10%, reflecting the switch to at-home consumption

Project Horizon underway

The first quarter marked a new period in Sobeys’ history with the launch of Project Horizon, its three-year growth strategy, which aims to build on the success of the former Project Sunrise turnaround plan. Although the retailer benefitted from COVID-19 related elevated demand in the quarter, the continued expansion of its Farm Boy and FreshCo formats, along with improvements to its core supermarket estate, also played a role in the strong sales and profit growth.

Source: IGD Research

Three-year growth and profit plan

Project Horizon’s goals are centred on growing market share and building out its cost and margin discipline. The retailer is targeting an incremental $500m in annualised EBITDA, driving an improvement in EBITDA margin of 100 basis points by fiscal 2023. Benefits are expected to ramp-up over the three-year period, with a large portion expected to be achieved through initiatives related to store productivity, private label, store renovations and new stores.

Expanding discount and supermarket formats

Over the next seven years, the retailer plans to remodel most of its stores, ranging from a refresh to a full reset of the store. Around 30% of the network will be touched during the duration of Project Horizon. New store growth will mainly be driven through the expansion of its FreshCo discount format in western Canada and the Farm Boy supermarket concept in the GTA. Currently, 22 FreshCo stores are operating in the region, with a further six stores expected to open this year. Two stores have been announced for 2022, bringing the total number of locations confirmed to 30, with a further 35 set to be converted. Ten further Farm Boy locations have been confirmed, which will bring the chain up to 42 stores.

Deploying store-pick model ahead of remaining CFCs to grab online share

Voilà by Sobeys is off to a great start with the retailer reporting a positive customer reaction and strong repeat behaviour. The retailer is seeing week-over-week volume order growth with “near perfect” on-time and fulfillment rates. With the second Customer Fulfillment Centre (CFC) set to launch in Montreal in early 2022, Sobeys is accelerating its plans for the two remaining CFCs. These will enable it to cover around 75% of the Canadian population and 90% of the spend. Remaining areas will be serviced through Ocado’s store-pick solution. This is currently being tested in Nova Scotia. It will also be deployed in areas ahead of the CFC build-out to enable Sobeys to capture share in the online grocery channel.

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