Sobeys’ parent Empire pays out $9 million in bonus pay in third quarter as grocery e-commerce soars

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Sobeys’ parent company Empire Co. Ltd. paid out $9 million in bonuses to employees in lockdown regions this winter, nearly doubling its expectations for the third quarter, Canada’s second-largest supermarket chain said in an earnings report on Wednesday.

Empire, which also owns Safeway and FreshCo, is one of the few major retailers to reinstitute regular “hero pay” bonuses during the second wave of the pandemic, paying up to $100 per week to store staff in regions where lockdown orders are in effect.

The company rolled out the bonuses as COVID-19 cases spiked again late last year, when only Manitoba and a few regions in Ontario were in lockdown. The company expected the program to cost up to $5 million in its third quarter, which ended Jan. 30. But Ontario and Quebec then entered full lockdown and the cost of the bonuses rose to $9 million. The bonuses are expected to cost an additional $4 million in the fourth quarter.

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Cancelling the first round of hero pay bonuses dealt a serious blow to the public image of Canada’s big grocers, which until that point had been widely celebrated for holding steady through a wave of panic buying last spring. But on June 13, each of the top three chains — Loblaw Co. Ltd., Empire and Metro Inc. — stopped paying their $2-per-hour bonuses, which had been in place since March.

The heads of the three chains were subsequently summoned by the parliamentary standing committee on industry, science and technology to explain the cancellation.

During the controversy, Empire stood apart from its competitors. Loblaw president Sarah Davis said she sent a “courtesy email” informing her competitors in advance of her decision to cut pandemic pay. Metro chief executive Eric La Flèche said he made several calls to competitors in May and June to ask whether they planned to end the pandemic pay. Empire chief executive Michael Medline, however, told the committee he made sure his legal counsel was also on the call and chose not to give La Flèche an answer.

All three companies have strongly denied any wrongdoing and have said they did not coordinate their decisions to cut the bonus pay.

The head of the Competition Bureau has since expressed concern about the issue, and the industry committee is now set to study whether Canada’s competition rules need changing, prompted in part by concerns around the cuts to pandemic pay.

Instead of bonus pay, Metro gave staff two gift cards ranging from $75 to $300 each, one in December and another in February. Loblaw did not immediately respond to a question on Wednesday about whether it has reinstated any bonuses.

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In the shadow of the pay cuts, the major grocers have also drawn scrutiny for decisions to reward shareholders with higher dividends and share buybacks. Supermarket sales have soared to record highs in the pandemic, with public health restrictions pushing the majority of restaurant sales into the grocery sector.

Empire reported a 47 per cent increase in earnings per share to 66 cents in the quarter. Net earnings were $176.3 million, up 55.8 million over the previous year.

The company’s quarterly sales of $7 billion were up $623.5 million over the previous year, including a 315 per cent increase in e-commerce sales. Same store sales — a key metric for year-over-year performance in retail — were up 10.7 per cent, excluding fuel sales.

The same store sales growth was well above expectations of eight per cent, Scotiabank analyst Patricia Baker said in a research note on Wednesday morning.

Empire’s quarterly results were “a nice beat,” she said.

Empire attributed its sales growth to the pandemic-related shift to eating at home, market share gains in food retailing as well as the western expansion of discount grocer FreshCo and the Ontario expansion of Farm Boy.

But Empire, like its competitors, is facing a difficult year-over-year comparison in the coming quarter as it nears the anniversary of the onset of the pandemic, when shoppers loaded their pantry en masse in fear of lockdowns and food shortages. In that quarter last year, weekly same store sales grew by as much as 52 per cent.

“The company has begun to lap the period when significant stock up activity was experienced in stores last year,” Baker wrote. “As such, sales in Q4 compared to last year will be less meaningful as they will not provide a full indication of underlying performance.”