Building on its acquisition of fresh market chain Farm Boy, Empire Company Ltd., the parent of Sobeys Inc., plans to buy a 51% stake in fresh grocer Longo’s for $357 million (Canadian).
Under the deal, announced yesterday, Stellarton, Nova Scotia-based Empire will acquire Longo’s 36 stores in Ontario and its Grocery Gateway e-commerce arm. Plans call for Longo’s to join Empire’s network of supermarket brands in the province — including Sobeys, Safeway, Foodland, FreshCo, Price Chopper and Farm Boy — and for Grocery Gateway, now serving 70,000 customers, to operate as a stand-alone business but collaborate with Empire’s Voilà online grocery operation to create efficiencies.
Longo’s current executive team, led by President and CEO Anthony Longo, will continue to lead the business, Empire reported. The Vaughan, Ontario-based chain also will be able to tap Empire’s infrastructure and capabilities in such areas as sourcing, logistics and real estate.
Empire said the purchase price is based on an enterprise value of $700 million, and the transaction structure allows the company to acquire full ownership of Longo’s over time. Five years after the transaction, Longo’s shareholders will have an option to sell up to a 12.25% interest to Empire per year, and 10 years after the deal, Empire and Longo’s have mutual put and call options for any minority shares outstanding. The Longo family plans to remain long-term shareholders in the business, according to Empire.
“Empire has strong momentum, and we are laser-focused on our Project Horizon growth plans in key markets like the GTA [greater Toronto area], both in bricks-and-mortar and e-commerce,” Empire President and CEO Michael Medline said in a statement. “Longo’s has built one of the most successful and sought-after brands in the GTA and southwestern Ontario. Longo’s is a crown jewel of grocery and, as a values-driven company, Longo’s culture aligns closely with Empire. We couldn’t be happier to be partnering with Anthony and the Longo’s team.”
Longo’s expands Empire’s footprint in the GTA and southwestern Ontario, Canada’s largest grocery market, and furthers the company’s plan to grow its market presence in Ontario, where it has 370 stores, including 36 Farm Boy locations.
For the year ended Feb. 28, Longo’s total sales of about $1.1 billion. The chain has opened 10 new stores in the past five years and is slated to open several more over the next five years. Founded in 1956, and previously called Longo Brothers Fruit Market, the grocer is known for its fresh and prepared foods, including a wide variety of meal solutions, as well as a strong private-label program and high level of customer service.
“With strong alignment to our family values and purpose, we look forward to working together with Empire to bring the Longo’s experience to even more Canadian families,” Longo stated. “The more we learned about Empire, the clearer it became that this was the right team to partner with to support our next chapter of growth. And, of course, we will continue to offer the same high-quality service and fresh products, exceptional private-label offering and the convenience of e-commerce that our guests have come to know and love.”
Empire has been steadily upgrading its store base. The company said it’s on track to renovate 30% of its stores over the course of its Project Horizon three-year strategic plan, launched last summer. Overall, the company’s retail network includes 1,547 food and drug stores across Canada.
The expansion of the Farm Boy fresh format and FreshCo discount grocery stores has been a key focus. Acquired in 2018, Farm Boy opened its 36th location in Ontario last month and is slated to open another six stores, net of one closure, during the rest of the 2021 fiscal year.
In late January, FreshCo passed the halfway mark in its Western Canada growth plan. The value grocery chain opened its 23rd store in the region earlier this month and is expected to open another three to five stores in the fourth quarter, for a total of 10 to 15 openings in fiscal 2021. Another nine stores, including one Ontario location, are due to open in fiscal 2022. In December 2017, Empire unveiled plans to convert underperforming Safeway and Sobeys supermarkets in Western Canada — amounting to approximately 25% of the banners’ 255 locations in the region — to FreshCo outlets over the following five years.
Empire said it plans to finance the Longo’s transaction with $197 million in cash, up to $125 million in stock and acquired debt of about $35 million. The deal is expected to close in the fiscal 2022 first quarter, pending customary closing conditions.
In reporting fiscal 2021 third-quarter results last week, Empire totaled retail sales of $7.02 billion, up 9.7% year over year, driven mainly by the impact of COVID-19, market share gains in the food retail segment, and the expansion of FreshCo in Western Canada and Farm Boy in Ontario. Same-store sales rose 10.7%, excluding fuel, while e-commerce sales jumped 315%.