Sobeys places big bet on ecommerce with Project Horizon

Date : 22 July 2020

Stewart Samuel

Program Director - Canada

Sobeys has launched a new three-year growth strategy, Project Horizon, following the recent completion of its turnaround plan, Project Sunrise. Central to the new strategy is the acceleration of its ecommerce initiatives.

Our view: a big bet on ecommerce

Much of what has been announced is a continuation of programmes which were underway, including the expansion of Farm Boy and FreshCo, or are core retail efficiency practices that others are implementing. However, the main standout and the key point of difference for Sobeys is the acceleration of its ecommerce initiatives. Due to the pandemic, online grocery penetration has tripled from its pre-COVID19 level, driving the company to drive forward its plans in this area.

This includes bringing forward the build of its planned CFCs in western Canada, which along with its first two CFCs will enable it to cover approximately 75% of Canadian households representing approximately 90% of Canadians' spend. The retailer is also rolling-out a new store pick model in areas where the CFCs will not deliver, or are not yet built, indicating its ambitions to capitalise on the opportunity created in the channel by COVID-19. Post-pandemic, the retailer is banking on the elevated demand for online groceries to continue, which will also help it minimise the dilutive impact of the channel on its margins.

Incremental $500m in annualized EBITDA

Central to Project Horizon is the plan to deliver an incremental $500m in annualized EBITDA by the end of fiscal 2023. This will be achieved through a growth strategy centred on core business expansion and ecommerce acceleration. The retailer expects to achieve $500m in benefits over the next three years by growing market share and building on its cost and margin discipline. It does not include benefits or risks, if any, from pandemic related sales and cost impacts. Commenting on the initiative, Michael Medline, president & CEO, Empire, Sobeys’ parent company, stated,

"Empire now has the team, the structure and the vision to achieve its sales and earnings potential. Even though we exceeded our Project Sunrise savings target of $550 million, there is still substantial value to unlock through Project Horizon. As the retail landscape in Canada continues to react and shift under the seismic waves caused by the pandemic it is clear now, more than ever, that we must be able to serve customers where, when and how they want to shop.“

Source: IGD Research

How it plans to grow market share

  • Invest in the store network – it plans to accelerate investment through renovations and conversions, and store processes, communications, training, technology and tools. Including the expansion of the FreshCo (30-35 stores) and Farm Boy (20-stores) banners, it estimates that capital spending will average $700m annually over the next three years for a total of $2.1bn
  • Improve store space productivity – optimising analytics the retailer will aim to drive improvements in store footprints, customer promotions and product availability. It will also look to tailor the range to store formats and optimise product adjacencies
  • Win Canadian grocery ecommerce – building on the recent launch of its first customer fulfillment centre (CFC) in partnership with Ocado, the retailer is accelerating its plans for the remaining two Voilà ecommerce CFCs, for a total of four across Canada. It will also introduce Ocado's store pick solution to serve customers in areas where the CFCs will not deliver or are not yet built. This will begin in Nova Scotia at the end of the summer, before expanding to western Canada
  • Grow the private label portfolio – having improved its private brands' positioning and branding over the last two years, the retailer will review their specific role in each category to determine in which categories and banners to expand based on consumer needs
  • Provide best-in-class customer personalisation – the retailer is moving forward with investments in analytics and technology to better identify customer preferences and support direct, personalised communication, improving the experience and relevance of promotions

Cost savings initiatives

Despite generating cost savings of $550m over the last three years, the company continues to see opportunities to remove non-value-added costs, ensure cost containment as the top-line grows and optimise margins. These include driving non-merchandising and merchandising sourcing efficiencies, using advanced analytics to improve pricing and promotional investment effectiveness, optimising supply chain productivity and improving back office and support functions efficiencies.

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