Grocery giant Empire buys majority stake in specialty grocer Longo's for $357M

Empire Company Ltd. has agreed to buy a majority stake in supermarket chain Longo's and its Grocery Gateway e-commerce business in a deal that further consolidates Canada's grocery retail landscape.

The Sobeys parent company said Tuesday the $357-million deal expands its reach in the lucrative southwestern Ontario market, building on its recent acquisition of Farm Boy.

It also solidifies Empire's position as one of the largest supermarket operators in Canada's increasingly concentrated grocery market, ahead of food retailers like Metro, Costco and Walmart, but behind No. 1 Loblaw.

Empire CEO Michael Medline said Longo's will be managed separately and that Empire will not "change or spoil" the specialty grocer.

"This model of keeping the brand separate has been extremely successful with Farm Boy and we believe it is imperative to do the same with Longo's," he told a conference call with financial analysts.

"The partnership with Longo's accelerates Empire's growing presence in Ontario and more specifically the Greater Toronto Area -- Canada's largest and fastest-growing grocery market."

Longo's has 36 locations in the Toronto area, while Grocery Gateway serves 70,000 customers.

Under the deal, Longo's and Grocery Gateway will continue to be led by CEO Anthony Longo.

"We are a strong competitor in southern Ontario's hypercompetitive grocery market and we're still a family business," Longo said during the conference call, noting that three generations of the family work in the business.

"The success of the Farm Boy acquisition gave me and my leadership team the confidence that Empire will meaningfully invest in our growth."

The acquisition builds on Empire's long-standing banners in Ontario including Foodland and FreshCo and 2018 acquisition of Farm Boy.

The Stellarton, N.S., based grocery giant also operates Safeway, IGA and Thrifty Foods.

Sylvain Charlebois, senior director of the Agri-Food Analytics Lab at Dalhousie, said the addition of Longo's strengthens Empire's full-service food retail offerings.

"Farm Boy and Longo's are both premium grocers that are very well established in Ontario, Longo's in particular in the GTA and that market is very difficult to penetrate," he said. "What I see certainly is a company looking to expand its market footprint in the GTA."

While Charlebois said it's concerning to see the increasing consolidation of Canada's food distribution landscape, he said Empire is the only major grocer to support exploring a code of conduct between grocers and food suppliers.

"Empire has recognized there is too much power given to one segment of the entire industry while Loblaw, Metro and other players have not," he said.

Meanwhile, Empire said Longo's will be able to benefit from its infrastructure and capabilities, in areas such as sourcing, logistics and real estate.

Michael Vels, Empire's chief financial officer, said future expansion of the company's store network will be based on market conditions such as demographics.

"All of our banners are going to obviously compete for capital," he said during the call. "We're going to make the right financial decision for all the businesses."

Decisions on new stores will be made "on the basis of the right fit in the right market," Vels added.

The Longo's deal, which will see Empire acquire a 51 per cent stake based on an enterprise value of $700 million, is expected to close in the first quarter of Empire's 2022 financial year.

The transaction allows Empire to achieve 100 per cent ownership of Longo's over time.

This report by The Canadian Press was first published March 16, 2021.