Is the pandemic fuelling Empire Co?

Empire Company is a leading Canadian food retailing and real estate company. The company operates under retail banners that include Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, and Farm Boy. Empire Company has a 41.5% equity interest in Crombie REIT and equity interest in residential real estate through Genstar. Its portfolio of properties consists of high-quality grocery and drug store anchored shopping centers, freestanding stores, and mixed-use developments primarily in Canada’s major urban and suburban markets. In addition, the company also operates a pharmacy business with free-standing locations through Lawton’s Drug Stores. Empire Company owns and operates fuel and convenience stores, and liquor operations.

Empire’s reportable segments are food retailing (Sobeys Inc.), investment and other operations. The food retailing segment is carried out through Sobeys, which is the larger segment accounting for nearly 85% of the operating income. Sobeys is one of the only two national grocery retailers in Canada, serving millions of Canadians through more than 1,500 retail stores and 350 retail fuel locations, operating in all ten provinces and in more than 900 communities across Canada. 

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Revenue Growth & Market Exposure

With more than a century’s experience under its belt, Empire Company has built a strong reputation of Canada’s most trusted grocer. Customers prefer the Empire brand for its fresh and quality products. The company continues its focus on strategic initiatives such as FreshCo, Farm Boy, and Voila. The company along with an alliance with Ocado has launched a central pickup, home delivery online grocery shopping business, Voila which has brought an integrated grocery e-commerce platform online to the Greater Toronto Area. As per Empire Company, Voila will be dilutive to earnings per share by ~$0.05 in Q1 of FY2021.

Empire is improving its private label business through the rebranding of the entire complement portfolio. The company is also focusing on increased product innovation and the reset of key categories. It rebranded its poor-performing Safeway and Sobeys stores to discount stores (FreshCo) in a few markets. Eleven more FreshCo stores opened in Western Canada in CY2019. Empire also acquired the business of Farm Boy, a leading food retailer in Ontario in 2018. Since the acquisition, the company has opened three new Farm Boy stores in Ontario and nine more are underway (expected by 2021).

Empire Company is working towards gaining efficiency and intends to simplify the organizational structure and reduce costs. In this regard the company’s Project Sunrise, a three-year transformation program is expected to result in at least $550 million in annualized benefits by the end of FY 2020. Empire Company is also pursuing data analytics and artificial intelligence to drive smarter merchandising decisions and more relevant customer communications. Given its strong national reputation, and a century’s old existence, Empire Company is in a good position to meet the evolving needs of its customers due to the current high demand for online grocery. Customers’ shopping behavior has changed and has shifted towards online grocery. Canadians are shopping less frequently by consolidating the trips to reduce exposure to COVID. A strong innovative and customer-centric approach is Empire Company’s key competitive advantage.


Empire Company is experiencing consistent cash flow generation, on the back of the solid top line, margin improvement, and successful capturing of Project Sunrise’s benefits. It last raised its dividend by 9%. Empire Company is a dividend aristocrat and has been raising its dividends handsomely over the last 25 years. The company has grown them at 6.7% CAGR over the last decade. It currently has a dividend yield of 1.6% and a very reasonable payout ratio of 24%. Empire last raised its dividend by 8.3% and sports a dividend growth rate of 6.5% CAGR over the last decade. It repurchased shares worth $100 million in FY2020 and announced the renewal of its NCIB to repurchase up to five million shares. The company has announced its intention to continue share repurchases in the future as well.

Empire’s cash flows are very safe. A large majority of Sobeys’ sales are generated from food products which are necessary products and hence recession-proof. Empire’s food retail stores such as Sobeys’, FreshCo, Safeway, IGA, are well known across Canada. Its Lawton Drugs store is also a critical business. Moreover, Empire’s stake in Crombie REIT also diversifies its earnings. The company is expecting online grocery sales to triple over the next few years and account for nearly 5% of the market.

Empire Company’s agreement with Ocado, the world’s leading online supermarket and Farm Boy, Canada’s fastest-growing food retailer should also prove to be incremental to the company’s earnings. In addition, its Sunrise project is also expected to generate annual benefits. The company’s cash flow stood at $595 million for the quarter. 

Rising demand for food and medicines should act as a tailwind for this Dividend Aristocrat. There are plenty of opportunities for Empire Company to diversify in its food segment and cross-sell products. Growing dividends, recession-proof business model, established market share position and strong geographic diversification should support future dividend hikes by the company. 


Empire’s food retailing business, Sobeys, competes with other national and regional food distribution companies, non-traditional competitors, and online retailers. The company is expanding online shopping as well as delivery options as it faces acute pressure from online grocery stores. On the conventional front, Empire competes with Metro Inc., a leading food and pharmaceutical Canadian company and Loblaw Companies Ltd. which is another leading grocery chain in Canada. Empire’s real estate operations compete with numerous other managers and owners of real estate properties.

Bottom Line

Empire Company has a strong national presence in the Canadian retail food and food distribution industry. As one of the largest food retailers in Canada, Empire Company was amongst the leading beneficiaries of the COVID-19 pandemic. Its Project Sunrise also surpassed three-year turnaround targets. The company leverages the strength of its brand and continues to build strong ties with customers and should continue winning more customers from investments in existing stores, new discount stores, and e-commerce platforms. This positions the company well for future dividend hikes in the mid-single-digit range. 

Dividend Adjusted Chart by StockRover.

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