Sobeys and Ocado partnership off to a promising start

Date : 11 December 2020

Stewart Samuel

Program Director - Canada

Sobeys delivered a strong second quarter performance, including ecommerce sales growth of 241%. We look at the details behind its results and the plan to accelerate its strategic partnership with Ocado.

Second quarter key numbers

  • Total sales increased 8.4% to $7.0bn
  • Same-store sales, ex-fuel, were up 8.7%
  • Food retail net earnings increased 27.3% to $162.8m
  • Ecommerce sales increased 241%

COVID-19 actions

Sobeys continues to benefit from the impacts of the COVID-19 pandemic, with the retailer’s performance strengthening recently. Over the first five weeks of the third quarter, same-store sales growth (ex-fuel) has ranged from 8-13%, averaging at 11%. With cases rising across many areas of Canada, and stores operating with reduced capacity, the retailer has put several new measures in place. It has repurposed store vestibules for queuing, added structural solutions and heaters and implemented virtual queuing in certain locations. During the second quarter, the cost of maintaining sanitization and safety measures increased costs by approximately $14m. 

Expects to continue benefitting from the switch to more at-home meals

New lockdown restrictions continue to be implemented in several of its operating areas, with the retailer estimating that is temporary ‘Lockdown Bonus’ could increase costs by around $5m per quarter. While the future impact is uncertain, the retailer expects that a percentage of the consumption that has shifted from foodservice to grocery stores will remain in the latter.

Aiming to win Canadian ecommerce

While the business continues to deal with the pandemic, it is also making progress against Project Horizon, the strategic plan it launched this year. A key element of this is winning Canadian grocery ecommerce. Having launched its partnership with Ocado earlier this year, the business is off to a strong start, driven in part by the pandemic. Operational metrics are impressive with the weekly on-time delivery score at 98.6% and the percentage of products delivered at 99.6%. Customer satisfaction, as measured by its Net Promoter Score, is at 87%, ahead of its target of 70%. Currently there are 100 Voilà delivery vehicles on the road serving approximately 85% of the geography the first Customer Fulfillment Centre (CFC) will ultimately deliver to.

Accelerating the roll-out

However, it remains early days for the facility, which is not expected to become profitable for at least two years. Capacity will continue to grow beyond that period given that it was developed to support the entire Greater Toronto Area (GTA). Sobeys also announced plans for its third CFC. This will open in Calgary, Alberta in 2023, following the launch of a second facility in Montreal in 2022. Next year, Sobeys will launch Voilà’s curbside pickup service in Alberta to begin providing an omnichannel experience to customers in that province, before going live with its home delivery service from the CFC in 2023.

Source: Sobeys

Pushing ahead with physical store expansion

The retailer continues to push ahead with the expansion of its Farm Boy supermarket format. It will convert an existing store in Ontario, scheduled to open in 2022. This brings the number of confirmed locations in the province to 42. Sobeys has also converted 22 former Safeway stores to the FreshCo format in western Canada, with a further eight at different stages of development. The retailer also has a major remodel programme underway, with stores segmented into four different tiers, reflecting the scale of renovation required.

Further upside to come

Once again, Sobeys has delivered a superb quarter. While the pandemic continues to have a major impact on its sales performance, there is a significant amount of momentum in the underlying business. It’s early days for Project Horizon, but it’s been developed on the strong foundation of the last three years, Project Sunrise. Ecommerce is off to a flyer, Farm Boy is about to have its most expansive 12 months and the discount business is gaining scale in western Canada. Store remodels, a significant upweighting of its private label portfolio and a more cohesive marketing approach also highlight the significant upside which continues to exist within the business. Seeing how far the business has evolved will become more apparent as the pandemic eases.

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