M&A Announcement

Mar 16, 2021

Good morning, ladies and gentlemen, and welcome to the Enfield Company Limited Reach's Agreement to Acquire 51% of Longo's and Grocery Gateway Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Tuesday, 03/16/2021. I would now like to turn the conference over to Katie Brown, Director, Investor Relations. Please go ahead. Thank you, Joanna. Good morning, and thank you all for joining us for our call today. There is a presentation available for download in the investor center on empireco.ca, highlighting what we will discuss today. This call is being recorded, and the audio recording will be available on the company's website. Joining me on the call this morning are Anthony Longo, president and chief executive officer of Longo Michael Medline, president and chief executive officer of Empire and Michael Bell, chief financial officer of Empire. Today's discussion includes forward looking statements about the proposed transactions and the companies involved. We caution that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially. I refer you to our news release for more information on these assumptions and factors. In addition, please note that throughout the presentation this morning, management may make references to non GAAP measures such as EBITDA. Management of Empire believes that these non GAAP measures provide useful information to both management and investors in discussing the proposed transaction. These measures do not have a standard meaning prescribed by GAAP and, therefore, may not be comparable to similarly titled measures presented by our publicly traded peers. I will now turn the call over to Michael Medline. Thanks, Katie, and good morning, everyone. It's nice to be speaking to all of you again so soon, and thank you for joining us on short notice. It's a big day. Empire is excited to announce that we have reached an agreement to acquire 51% of Longos, including Grocery Gateway. Longos is a grocery crowning jewel of the Greater Toronto Area in Southern Ontario with a very strong brand and legions of loyal satisfied customers. The close of the transaction is subject to customary closing conditions. The partnership is expected to close in the first quarter of our fiscal twenty twenty two. Initially, Empire will acquire 51% of the Longo shares. Longo's and grocery will continue to be led by president and CEO Anthony Longo, who is here with us today, and his team of talented executives. Over time, there are opportunities that allow the remaining 49% to be acquired by Empire. Mike will take you through that in a moment. You know, we've always been impressed with the business the Longo family has built. I met Anthony shortly after I joined the grocery industry, and we struck up a friendship. He brought me into the Grocery Foundation charity where we built a great relationship, and I have a ton of respect for Anthony as a leader and a person of values. We had a conversation during COVID, and it started a further discussion around what it could look like if we ever brought our two companies together. Negotiating a deal through the pandemic has certainly been interesting, but here we are. Anthony will speak more to why the Longo family decided Empire was the right partner for the next phase of their company's history. 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 is one of the most successful and sought after brands in the GTA. Those of you close to this market well know the Longo's and Grocery Gateway banners. The first Longo store was opened in Toronto in 1956 by three brothers, Tommy, Joe, and Gus. And since then, it has been family owned and operated. It has grown to 36 store locations and an ecommerce business with an unwavering focus on delivering an impressive grocery retail experience to its customers. Longo's wins with customers by offering fresh, high quality products, including an exciting prepared food offering and an exceptional assortment of 1,300 premium private label products. Their unique loyalty program now has over 420,000 households, representing approximately 1,000,000 customers or guests, as Anthony's and his team call them. The Longo family has always taken a long term strategic view of their business and have continuously invested in its growth over the years. Longo's was one of the first grocery retailers to invest in online delivery when they purchased Grocery Gateway in 02/2004. Because of its early investment, today, Longo's is the leader in grocery e commerce in the GTA with over 70,000 loyal customers. Like Empire and its Voila business, Longo's uses a central fulfillment model with its dedicated distribution center for its grocery gateway business. As I've said before many times, central fulfillment is the only profitable approach to grocery ecommerce over the long term. With Grocery Gateway's years of experience in the GTA market and our automation and AI capability, there are learnings we can share to deliver an even better customer experience on both platforms. Also of great importance, Longo's is a family built business and is very much aligned with Empire's values and culture. In fact, the first time we met, we swapped books of the history of our company. Anthony gave me a copy of The Long Go Way, and I gave him a copy of Frank H. Toby's biography, The Man and the Empire. It was clear from day one that both businesses are based on strong family values. This includes our customers first mentality, a commitment to our teammates and community, and a dedication to philanthropy. With the greatly admired Mongols brand, store network across GTA, thriving grocery delivery business, and strong fit with our company, I cannot say strongly enough what a great addition this is to Empire's family of banners. We know this is just the beginning of a long and successful partnership. Now you know why we're so excited about the partnership, let me get ahead of a few questions you may have. First, in terms of how we will operate the business, Empire will become the majority shareholder, but Mongols will be managed separately. 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. As I pledged when we acquired Farm Boy, let me say to Longo's customers and team members, we will not change or spoil what has made Longo's great. Like Farm Boy, Longo's will benefit from Empire's national scale, infrastructure, and strong capabilities in areas such as sourcing, logistics, and real estate. Both Empire and Longos believe these benefits will be meaningful. However, Longos and Grocery Gateway guests will see no changes to their experience unless it is to make Longos even better. Second, why do we need two ecommerce platforms? Simple answer. We believe we appeal to more customers with the two platforms as they provide different value proposition for customers. Phone platforms are growing materially and are adding customers so we can further accelerate our online penetration by operating them separately. At the same time, the two groups will collaborate to generate ideas and opportunities. Grocery Gateway has decades of ecommerce experience in the GTA that Voila can benefit from. Voila uses world class technology and analytics, which could make Grocery Gateway operations more efficient. But for right now, we want them each to focus on capturing market share in the growing online market and avoid distractions and disruption. Third, we're not even through our first year at Verizon. Can your team handle this? Let me be crystal clear. This will not disrupt Verizon. In fact, it aligns with our overall Verizon agenda and complements our goal to win e commerce. We have a lot on the go, but we have strong management with smart teams and detailed plans to successfully complete Verizon. In addition, Anthony will continue to run Longo's and Grocery Gateway with his talented team. This structure allows for Empire's operators and merchants to remain laser focused on running the business and executing on Horizon. As I noted last week on our Q3 earnings call, we are very proud of the strategic investments we've made in Farm Boy, FreshCo, voila. Today, we add Longo's to that growing list. We are building momentum as the fastest growing grocery retailer in Canada and are focused on our customers, on growing our market share, and on having a superior rate of return for our owners, our shareholders. This partnership with Longo's, alongside our strong core business and strategic initiatives, makes us even more confident than ever that we have the assets to drive that growth. And with that, I'll pass the call over to Anthony Lago to say a few words. Welcome, Anthony. Great. Thank you, Michael, and good morning, everyone. It's very humbling to hear Michael speak of our family business as a crown jewel of grocery. In 1956, my father, Tommy, and my uncles, Joe and Gus, set out to build a business based on our family values. Their founding philosophy, treat people like family, has become a trademark of our distinctive services and is why we are committed to providing our guests a superior experience. Now here we are sixty five years later, and we've grown to 36 retail locations with more than 6,000 team members, and we proudly operate our ecommerce business, Grocery Gateway. We are a strong competitor in Southern Ontario's hypercompetitive grocery market, and we're still a family business with three generations of longos working in the business. And I can tell you with confidence, our values have not changed from day one. Our team members, our guests, our supplier partners and the communities we serve are our top priority and are always treated like family. Working this working through this deal has been an adventure, as Michael noted. The pandemic brought unique challenges, but Michael and I were able to talk and meet when required. And, of course, we had to make our discussions private. In fact, one afternoon, we met on a bench outside of the Bay Adelaide Building, which is what normally is a very busy location in Toronto, and there wasn't a single person around. That would not have been possible in normal times. Together, we persevered through the difficulties of the pandemic. And today, I'm thrilled to announce that we are joining the Empire family. As we look to the future, Empire is the perfect partner in the next chapter of our company's history. Together, we will become even stronger, more competitive to grow as a trusted food partner for Canadian families. The more I learned about Empire as I spoke with Michael, the clearer it became we had a strong foundation of shared values. Empire's notable success through the Sunrise turnaround, along with the success of their Farm Boy acquisition, gave me and my leadership team the confidence that Empire will meaningfully invest in our growth while preserving and nurturing what makes us great. I completely support Michael's perspective of supplier partnerships, his commitment to philanthropic giving, and I have a lot of respect for his experience in effective retail strategies. I wanna reiterate what Michael has already said. The experience of our guests will not change. Our guests have come to expect the world class produce selection that we offer. They love our exceptional selection in deli, cheese, seafood, meat, and bakery, as well as our signature prepared foods like like fresh handpipe cannoli and seasonal celebrations, and, of course, the ability to do one stop shopping with a curated assortment in center store. And our guests appreciate our team members who are dedicated to exceptional service. Empire agrees our guest experience is part of the magic at Longo's. The only changes would be those that make our stores and the experience even better. We will we will be becoming more efficient through Empire. They have impressive sourcing, logistics and real estate that we will benefit from. We'll also have access to new supplier partners as we look to add exciting new products to our Longos Essentials, our Longos brand and our Kirtato private label programs. As a family, we are all really excited to be joining Empire, another successful Canadian built business founded by another great Canadian family, the Sobe family. I know that together, our future looks very bright. So far, we've only been able to meet the Sobe Sobe family virtually, and it was it was a great meeting with them. But I'm very much looking forward to a trip out out to Atlanta, Canada to meet them in person as soon as it is safe to do so. Thanks very much. And with that, I'd like to turn it over to Mike Bells. Thank you, Anthony. And so I'd like to personally welcome you and your teammates to our business. I'll provide a little more color on the financial aspects of the deal. We're purchasing shares in Longos based on an implied enterprise value for the total company of $700,000,000. As Michael said, we're purchasing 51% of the business today for an initial consideration of $357,000,000 Embedded in the calculation of the acquisition price is the valuation for the stores, the online grocery business, and then a variable payment for the remaining 49% over time. I thought it would be helpful to give you some background on how we have thought through the valuation of the business. First, we've purchased a well established online business with over 70,000 customers with a central fulfillment capability. This provides another arrow in our corporate in the online channel. And over time, we're intrigued with the potential of collaborating between the Voila and Grocery Great Gateway businesses to further our goal of winning the online channel in dense urban areas. We do not intend to separately disclose our valuation for Grocery Gateway, but it would be fair to say that we placed a significant premium on the ability to own Grocery Gateway and have its loyal customer base as part of the Sobeys family. Second, the total multiple for 100% of the business will fluctuate based on both the timing and the variable multiples paid for the remaining 49%. Regarding future growth in earnings, we are assuming that Longos will add more stores in the Toronto area over the next several years. Over the last five years, Longos opened 10 new stores. The cadence of store openings in the future will be driven by the Longos team based on their assessment of market opportunities and supplemented by our real estate team's expertise and access to sites. Any additional stores will be incremental to our existing strategic plans and will not impact the pace of the Farm Boy rollout. Our valuation does include meaningful noncustomer facing synergies. These synergies have been identified by Anthony and his team working with us and will be a priority for both teams. We expect to see the value of these synergies fully occurring to results in the second year following acquisition. I want to emphasize that these synergies are noncustomer facing and will not impact Longo's team members. The areas we will focus on are procurement, supply chain and other nonheadcount related overheads. Large portion will come from procurement as Longo's will leverage Empire's national purchasing power. Longo's has a well functioning supply chain, and we expect that introducing their warehousing and logistics capacity into our network will improve customer experience and net delivery costs for both businesses. With our real estate relationships and expertise, we will provide support as Longo's to build delivers their store expansion plans as we have done for Plumway. For ecommerce, we will monitor and assess potential opportunities and efficiencies between Voila and Grocery Gateway. For example, by increasing efficiencies of using Ocado solutions technology in the Grocery Gateway distribution center over time. It's extremely important to both management teams that Blongos and Grocery Gateway customers see no changes in their experience. Regarding synergies with the Farm Boy acquisition, synergies were minimal. However, this is not the expectation with Longos as the Longos stores have more overlapping categories with the Empire assortment, and together with Empire will have larger scale that will enable more efficient procurement. It's also key to note that we don't expect the benefit of this acquisition to be one-sided. As Farm Boy brought an enormous amount of knowledge to us, we will work with Anthony and his team in the same collaborative spirit. From what we've seen so far, they have a commissary capability, for example, that we like a lot, including including a great line of high quality mealtakes, a strong loyalty program, and a strong private label that we'll take lessons from, same as we did with Farm Boy. We will fund the initial purchase by issuing up to $125,000,000 in Empire shares as requested by the Longos family using cash on hand of approximately $190,000,000 and acquired debt of approximately $35,000,000 As we noted on our quarterly call last week, we expect to significantly increase our normal course issuer bid in fiscal twenty twenty two and expect that the total shares repurchased through the end of fiscal twenty twenty one and into fiscal twenty twenty two will more than exceed the shares issued to the Longo family. Longo has had approximately $1,100,000,000 in sales for the year ended February 28. This is a strong business with significant upside that we believe we'll be able to unlock with Anthony and his team. We've completed a great deal of diligence and spoken extensively with Anthony and his team, and we're confident in the success of this acquisition and the ability for it to drive a solid return for our shareholders. As Michael said, we structured the deal as a partnership with an accomplished and committed management. It will be minimal impact on our resources, and we do not expect that this will impede any other Horizon projects. Farm Boy adding seven to eight stores per year through Horizon, Voila's order volumes growing week over week, plus our strong base of Sobeys, Funland, and FreshCo banners in Ontario, and now Longos and Grocery Gateway, we are making great strides to grow our presence in the largest grocery market in Canada. We're excited to add Longos and Grocery Gateway to the Empire's family of banners and believe they're a tremendous addition to our portfolio. We look forward to partnering with Anthony and his team to grow our presence in Ontario, win Canadian e commerce, and bring benefits and learnings to both companies to make both even stronger. Again, welcome to our business, Anthony. I can't wait to start working with you and your team. And with that, operator, if you could open the line for questions. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. First question comes from Mark Petrie at CIBC. Please go ahead. Hey. Good morning. Obviously, you're adding some, you know, very strong assets to the portfolio, that are differentiated in the market. But, clearly, just given the geographic, overlap, you know, there is there are sort of, you know, overlaps, both stores and online. So could you just sort of, elaborate on your plans on how you would expect to prioritize store growth, I guess, specifically for Longos and Farm Boy, but then also with regards to online for gateway and voila. Sure. Good morning, Mark. So, you know, we've I'll deal with with the online first. We we we, you know, we really like the grocery gateway business. It's the it's the only other central fulfillment business Ontario scale. And and and we believe that that having the two brands and the two businesses operating in the market are going to be positive to to increasing our sales over the the short to medium term. As as I mentioned, you know, the two management teams are for sure gonna collaborate together to figure out how, you know, through combination of assortment, innovation, and efficiency, how we can make both both businesses more efficient. But this time, you know, owning both brands and running them together in the market, we believe it's gonna yield, you know, significantly more customer growth with only both of them versus versus just just for last. So happy to have both of them. They're gonna work separately for a period of time. On on the stores, we've we've done a significant amount of work to work through, you know, the the the possibilities and the opportunities for for Longos to grow their store base. And alongside with the Empire Banners, we're we're very comfortable with the ability to grow grow all those banners, you know, over a period of time. And, and we don't see any significant, issues in terms of overlap between between the banners at this point. Okay. And and how does this affect, you know, your real estate plans for the existing Sobeys business? I mean, seems like there might be an opportunity to, convert locations to the Longos banner, you know, maybe a better fit than Farm Boy just given store sizes. Any, any comments there? Well, there's no doubt that that, you know, adding another banner and and a great management team always in our market gives you more flexibility, but we don't have any plans to convert Sobeys stores to Longos at this point, and we have no plans to convert Longos to Sobeys. These are, you know, FreshCo, Farm Boy, Foodland, Longos, and Sobeys are all strong, strong banners in their own right. They fit well into market segments. And we plan to grow our screen footage, and we we don't see the the Longo's acquisition as as as a means to to convert Sobeys stores. We we expect to see the Sobeys banner maintained and and and growing in the marketplace as well. Okay. Thanks. And and then just one more. I'm wondering if you could provide any sort of commentary with regards to, you know, how, the deal will be evaluated, how, there you know, any sort of triggers with regards to future valuation and and sort of incentives for Longo's management? Is it is it sort of growth in sales and earnings, or is it sort of number of stores? Or, you know, what are the what are the key drivers there? I I think the the only thing I'm gonna say, Mark, on that one is that it's it's geared to growth. And and and as you can imagine, you know, one of one of the ways you you you achieve that growth is through new stores. So So it would be fair to say an organic growth. Right? So we've a combination of synergies, top line organic growth, and and new stores. So so so clearly, both the Longo's management and the Sobeys management are jointly incentivized to to grow more Longo's stores in the marketplace. Okay. Thanks. I'll pass the line, and congratulations to you all. Thank you. Thanks, Mark. Thanks. Thank you. The next question comes from Chris Lee at Desjardins. Please go ahead. Good morning, guys, and congrats on on the partnership. Maybe a first one for for Anthony, if I may. Anthony, can you give us maybe a bit more background in terms of just the timing of the decision to sell now? And was it a competitive bidding process? Sure. Happy to answer the question, Chris. No. We were we were not in any in in a process at all. This really started when Michael and I were talking about COVID in the summer. And as we were talking about how our our various companies are are helping our customers and our team members stay safe, and it just led to a discussion around how well the Farm Boy acquisition was going. And then we started talking more about, you know, what would it look like if Longo's and Empire came together. And the more, you know, the more Michael and I talked, the more I was convinced that that they would be if if we were ever to sell, they'd be the right partner because of the values that that that they bring and their commitment to their team members, their commitment to to their supplier partners and community. And and it just get continues to get reinforced. And at that point, they brought it to our families saying, why don't we at least consider this? And and we did, of course, and it brought us to to today. So we're really thrilled that we chose Sobeys to to partner with. They're a tremendous family and and a tremendous management team led by Michael. So we're really happy to be part of this. Great. That's very helpful. And then another one maybe for Michael. Michael, just maybe a follow-up to Mark's question earlier. You know, when you compare the return on capital from acquiring the Longo store versus opening more Farm Boy stores, what was your conclusion? I mean, I understand there are obviously a lot of great benefits from Longo's, but at the same time, you're doing a really good job expanding the Farm Boy presence in the GTA with some great real estate opportunities. So just wondering, you know, what was the conclusion when you did the analysis internally? Conclusion from the analysis was I wanted them both. Yeah. Reading. And and, yeah, these are very different customer propositions. There's some similarities in terms of how successful they are and how they drive sales per square feet and how loyal their customer base is. That would be a similarity. These are different businesses. And but, you know, when you know, back in 2017 when when Mike and I and others put together the first strategic plan, it was so clear to us that there were two things we needed at Ontario, especially GTA, and ecommerce. And so I think you can, you know, you can say today that we've we're never done, but we've improved all of our organic banners, the Sofie's, the FreshCokes, the the food lands. And now we've added voila. We have this superb farm boy, but we're soon gonna add the the the jewel of of long goats. And so, you know, we're we're simple people. We have a strategy. We go execute on it. But when when when Anthony and I started that chat back last summer just talking about how to keep people safe and and we started talking about this opportunity, I don't know. I think I was probably a little giddier than than even Anthony was because he I've always looked up to Anthony. And even when I ran the hard goods and soft goods, I I I really liked what they were doing in terms of their brand, in terms of their customer proposition. So I think that the that was the long answer. The short answer is one of them both. Gotcha. And that's helpful. And maybe my last question. I remember when you bought Farm Boy, you provided some useful metrics in terms of EBITDA margin and sales per square foot. Can you maybe share that with us, again for long goes? The the information that that we provided so far, Chris, is is the extent of what we have provided at this stage. What I can tell you, though, which may be a bit helpful is, you know, the the longer stores have a number of different formats from you know, all the way from three quite small stores that operate in the in the in the path of the Toronto underground, you know, to to to larger stores in the in the sort of fifty, fifty five thousand range. If you look at sales per square foot and productivity, they would fall roughly between between our Sobeys and and Farm Boy stores in terms of productivity. Gotcha. Okay. That's helpful, and congrats again. Thank you. Thank you. The next question comes from Irene Nattel at RBC Capital Markets. Please go ahead. Thanks and good morning everyone. Congratulations on the transaction. Just following up on Chris' last question, if we were to assume broadly speaking, that valuation metrics and, you know, anticipated synergies were, like, consistent with the Farm Boy transaction, would that be reasonable? We believe that the well, not believe. We we know that we will yield more synergies from this transaction than the Farm Boy transaction. As I mentioned on the call, there's there's there's significantly more overlap between the between the assortments. And so and so we we will be at the the higher procurement synergies. Longo's is also all in the GTA, unlike Farm Boy, which was in Ottawa. So from a warehousing and supply chain and logistics perspective, we see more upside there than than than Farm Boy. So actually, a fairly significant element of our valuation is is driven by those synergies, which as I mentioned, we we expect to be able to mostly attain by the end of the second year following acquisition. And in terms of the headline multiple? It's it's more complicated than Farm Boy because, you know, we're buying an online business, and also, you know, paying effectively paying a control premium upfront and then the and then a variable premium over the rest of the over over the rest of the the ten years or at least up to up to the the next ten years and potentially beyond that. So so it you know, mathematically more complex. But over time, you know, we'd expect we'd expect the multiple pay for a 100% to be, you know, excluding gateway, which should be a separate valuation, you know, roughly equivalent to multiples you've seen this in in this industry. That's very helpful. And then just sort of taking a step back. So now you've got, you know, multiple private label brands. You've got two different online banners. You've got Longos and, Farm Boy. That I I think that there's probably a reasonable degree of customer overlap between those two. Can you walk us through thinking around, how you keep those separate identities versus what could be some interesting potential benefits of sort of cross, you know, I guess, cross fertilization, if you will, of some of the offerings and and private label banners. Hi. It's Michael. Thanks, Irene. Good morning. Thanks for the question. It's a good one. One I I think about quite a bit. You know, sometimes I wake up in the morning in which we only had one banner, and and they were all the same size stores. But then I slap myself, and I realized what a huge prize our our complexity actually gives us and the number of banners we have and that it's a strategic advantage. You know, these they're obviously in in all grocery or any retailer, some overlap. There's not as much overlap in terms of the banners we have as as one would think, and having these different banners is the best way to grow. And it it also makes us more local, actually. It's got a text from someone this morning. It was smart. It says you feel local because you have all these banners that grew up in in certain regions of the country, and I agree with that. I think, though, that the the temptation in all of this is always to, you know, think that you can cross fertilize and and and and and you can move people from banner to banner, and you can be cute with it. But I've always in every acquisition I've ever done, I don't believe that. I think that we have to be ultra careful that these banners and these brands represent different things to Canadians at different times, different seasons, different times of day, different days of the week even. And now as we do more and more analytics and we get better at it, I'm seeing even in our own banners the complexity of of thinking this through and getting it right, and we're getting it right in our organically in our current business. So but we'll always to keeping these separate over only through a ton of work and a ton of time do we would we ever do anything to mess around. Like so look. I think Farm Boy is a perfect example of of how to buy a incredible banner, what which Longo's is too, and to integrate it. We we didn't mess with it at all. We we freed them up to get some great real estate and put up more stores than they ever have before. Not gonna cover up the mall. But then over time, we said, you know, working, and it's actually far more. It gives us the ideas. And it'll be Anthony and his team that give us the ideas. Hey. Why don't we cut carry some private label and roll up? Why don't we offer some private label at peaks in Nova Scotia? How that goes? And then we have the great learnings from Jill Belmar and and and Jeff York that they're bringing over on commissaries, private label, on fresh. And and it and it's gotta come that way. And that's and, you know, since the summer, that's mostly what Anthony and I talk about. I I keep saying to Anthony, like, we're not gonna disturb you, but we're but we need you. We need your ideas and and the brains of you and your your team. So that's how we look at it. That's very helpful. Thank you. Thanks, Sarah. Thank you. The next question comes from Vishal Shreedhar at National Bank. Please go ahead. Hi. Thanks for, taking my questions, and, congrats to Longo's family for building a great, company over time. You know, when I was younger, I used, my father used to shop at the medical location. Okay. So maybe you could just help me with the the the the materials here. It says that that the Longos family aims to be long term shareholders of Longos over time, and then it also can achieve a 100% ownership over time. So how should I think about that? Okay. Why don't I answer it? Then Anthony will answer it. So from our perspective is you always have to have a potential endgame. You have to. However, our wish is that the Lago family stays forever. And if we continue to own fifty one, they own forty nine, and they continue to do a great job they they they've always done. That's our hope. Anthony? Yeah. No. We we really enjoy the the business. We love we love retail, and we love grocery. So we'd love to be able to stay involved with Empire for decades to come. As I mentioned earlier, we have three generations that work in the business, and and they're all very committed to continuing to grow to grow longos and and grow our family legacy. It just we'll grow it under under the under the great Sobe family umbrella. And we're so we really are looking forward to to continue to build on that. And the the Empire shares we took back because we think that Empire has a great strategy, and and and we believe that that value will grow over time as well. So we we fully intend to hold those for the long term. Okay. Thank you for that. And and along the same lines of questions that others have been asking, but maybe you can help me understand why Empire would require multiple ecommerce fees for for the GTA market. Maybe you've already answered it. I'm missing a message here, but wasn't the biggest driver of improvement for Voila volume? And wouldn't pushing Gateway closer Gateway's volume into Voila, wouldn't that help profitability for for all parties? Sure. So so, Chris, I I think saying that we require it would be incorrect. You know, we're we've been very clear that that guala is a is a winning proposition, And and and and it's you know, that that that's been the investment we've we've we've elected to make to to win the online grocery channel in in in Canada. But we're thrilled to have grocery gateway. So, you know, if you if you have if you have the choice, you know, you'd love you'd love to run two material, you know, online grocery ecommerce businesses, especially, you know, being that grocery gateway is a central ship, which we think, you know, over time is the only way to be consistently successful. So not required, but really, really happy to have it. Over time, as I mentioned, you know, we're we're gonna figure out how to be the most efficient we can be between the two businesses and and make the most money between the two businesses that that that's that's possible to to to make. And today, they're they're both gaining customers, and they're both growing, which which is just a great situation for us to be in, you know, once once we close this transaction. So just thrilled to have it. We see there's all kinds of potential upside in terms of working together and collaborating, and and and happy to have two two great online grocery brands. Okay. Is grocery delivery profitable after all the fixed costs are are levied in? It's we're we're not we're not we're not gonna disclose profitability for for for the business separately. It's I'd say it's it's a business that that that does well. And and is I I think one of the more efficient ones out there considering, you know, the the necessity to provide customers with with online options. Okay. Will will this will this business be fully consolidated into p and l on your EBITDA line? Yep. We're gonna consolidate all lines, sales, EBITDA, etcetera, and we'll have a minority interest representing 49%. K. Will it be immediately accretive to the EBITDA margin or 10 meters? It's gonna be immediately accretive to net earnings. Alright. Okay. And when you report ecommerce growth, will you include will you include Scotia Gateway's growth in your in your ecommerce growth numbers? I suppose we will. Yeah. Okay. And when you I'm sorry about that. Right. Yeah. No. I I mentioned survey goes. And and when when Longos comes to to to Empire, and Empire will assist to provide you resources and and and procurement and so on and so forth. Is there a transfer cost between the the organizations, you know, representing that that the shareholders don't get a 100% benefit as long as it's currently? Not sure I understand the question. I I think I do, Chris. So but if if I if I if I clearly didn't understand or give you the wrong answer, just let me know. I I think what you're saying is is is there a is there a conflict of interest? Because, you know, we might wanna do things that that would be, you know, more beneficial to the Empire shareholders versus Longos. It that's you know, I think that's that's a valid question just because of the the different shareholdings. But, you know, over time, I've and Michael has as well, you know, run many, many different configurations, you know, joint ventures. As you know, for a lot of my career, you know, I was involved with a with a publicly publicly traded minority interest company. And and the one thing that I have learned is that your operators and your management need to be focused on making the most money for both companies. And and and and at the end of the day, you know, you you need to incentivize driven management teams like Anthony Longo's team to make the most money possible and and Ben Oberbakos to do it. So so, you know, that that's our plan, and that's what we're going to do. And and if that if we can find ways to to provide, you know, incremental benefit to to to Belongo's business, we're all in on that. And, and from our perspective, it's it's totally epidemic, that we happen to own, say, 51% of a longer store versus a 100% of a of a Sobeys store. I I don't look at Farm Boy that way. I I I look at Farm Boy and the rest of our management team look at Farm Boy every single day as if we own a 100% of it, and that's how we can look at longer. So, that that I can tell you is the only way to run a business, it's the only way to generate trust, and it's the only maximize your profitability. Thank you. Thank you. The next question comes from Michael Van Nuest from TD Securities. Please go ahead. Hi. Good morning, and congratulations on the transaction. Earlier, you talked about having about the two ecommerce platforms having different value propositions. Can you, give us more detail as to how you, you know, how you would describe them? I guess, how how how you describe those two value propositions? And then what might be the trigger for you to to decide to merge the two ecommerce business down the road, whether from a logistics standpoint, and or from a customer facing standpoint? Anthony, do you wanna go first and then Mike? Sure. So, you know, I think our two, our two banners, compete with very to very different, consumers. And in in our case, in in Grocery Gateway, think our assortment is different than than that of Voila. We've we've really focused on the on the perishables side of our business. That's what our strength is. We have a good, you know, good center store offering, but I think our our focus is on the perishables. And the other component I'd say is is really leveraging the Longo's brand so people know what they're gonna get from, you know, from an experience as they think about Longo's as a brick and mortar store. So more of an omnichannel type, you know, type arrangement, I'd say, for for consumers. And then and then I'd also say, in terms of service levels, I haven't shopped volley yet. I I probably I'll probably try it soon. But but our service levels, because we've been at it for so long, many of our customers know their driver, and their driver knows them, and and that that we've really built that up over the years. Polar's only, you know, been in the market for just under a year so that they still have an opportunity to to build that. But I'd say we really have, you know, very different, you know, views in the marketplace or perceptions in the marketplace. And the other thing that we do that I don't think Quala does is we do take, you know, hundreds of of orders from seniors each each week that call in because they don't have the capability to to to do it online. So we help them with that, and it's an added service that that we do as well. Alright. And to answer your second question, Michael, it's it's gonna be about about that the guest or the customer experience. So so if there's a way to find a way to enhance our our guest or customer experiences, we're gonna we'll run at that. But, you know, both businesses are growing, and and and we're we're we're actually confident in in the outlook for both of them. So there's no there's no there's no imperative of running platform to to at this stage to bring them together. We might make a little bit more money if we if we got more efficient or, you know, accelerated growth in this the Voila CSC. But but we're you know, we we we really wanna see how we can maximize and and increase the size of the pie here with two businesses. And and we we'll we'll just we're gonna run them and and see how it goes. And and as Anthony said, you know, there's a very, very low customer base in grocery gateway, you know, some of are the stores. You know, there's there's a certain expectation they have, and and we're not we're not gonna mess that up, you know, for the sake of a few dollars and cents here and there. Okay. But given the scale or or the size of of your of Wallace's CFC, is there any barrier to merging two supply chains at least or to logistics? Well, I I I mean, I think all I'll say is two things, really. One is is is that Voila CSC is, of course, is very flexible and and and can handle a a large variety of different online businesses and and and and clearly, you know, Longo's is grocery business. Second, though, is that there are there are some products and some some very innovative and unique and specialty products that that Grocery Gateway actually delivers, you know, where, for example, they they've cut their own meat in in the back room and and and and have, you know, unique cuts delivered to their customers. So there's some innovation and some and some things that Grocery Gateway does that it's not really that suited to to a high volume, you know, robotic operation either. So so, you know, they as as Anthony said, they do do bring at at the margins, you know, slightly different experiences to to their customers. And and that's what I mean by collaborating and learning between two businesses. But but, yeah, to answer your specific question, our CFCs are very efficient, and they're very flexible and, and could take on a lot more business. Okay. And then and then just getting back to real estate allocation, if if how would you decide between a Farm Boy and a smaller Longo store if you're going into a GTA into into the GTA and you had a parcel of land? Like, what would be the creep key criteria in determining which brand or banner goes there? Well, what we've agreed with Anthony's and his team is we're gonna look at those exactly the same way as we look at at our other banner decisions. And it it's on the basis of of the right fit in the right market and then and the relative financial returns. So today, if it makes more sense to put a FreshCo into a market instead of a a Plumboy, we'll do it. And as you've you've actually seen us do that several times since we bought Farm Boy. And so, you know, all of our banners are are going to obviously compete for capital, and and we're gonna make the right financial decision for for all the businesses. We don't see that as being an issue at all because because, you know, Longo's the Longo's format and the Longo's stores are going to work in locations that a Farm Boy won't. And, and and we're we're comfortable that, that both Farm Boy and the Longos banner are gonna fit well into the into the portfolio. And can you just clarify, like, what what locations would work for Longo's but not for Farm Boy? Well, generally, a location where you you wanna build a, you know, either because of the demographics of the of the market growth, you wanna build a one stop shop. Larger conventional store would be one example of of a location where you'd say, you know what? Actually, we're gonna maximize our revenue by by putting a larger store in here rather than the front, for example. I mean, there are gonna be some areas where they're currently competing head to head, and and it's gonna be a hard decision. We we welcome that. You know, it's a nice problem to have. Right? But but over time, we we're we're very comfortable with Anthony's cadence of of store store builds, and and we're gonna be able to accommodate both. Great. Thank you very much very much, and goodbye. Thanks. Thanks. Thank you. Next question comes from Peter Sklar at BMO. Please go ahead. At this point, I just have a couple of questions for Anthony, if I can. Anthony, I would have thought that, you know, given that this is a multigenerational business, it sounds like you have kids or nephews in the business. So this must have been quite a big decision, you know, to to sell control to Empire. I'm just wondering if you can talk a little bit like, I understand you have the personal relationship with Michael Deadline, and you both thought through ways that you could operate together and, you know, maximize the two businesses. But can you talk a little bit more about you and your family's motivation? Did you know? So for example, you know, everyone knows that the the grocery business is just changing so rapidly now with ecommerce and data, and it's so many layers of complexity. I'm just wondering if that played a role in just generally what the family thinking was. Yeah. No. For us, it was an exciting opportunity to to grow our business even faster and with a great partner. So we, you know, we see when we saw the we've been in business now sixty five years. So we saw this, we were we're always talking about what is you know, what's the next chapter, and we really saw that having a having a strong partner like the Sobe family and Empire helps us ensure that our family will play legacy for for generations to come. And that's why we chose Sobeys because they do have a long term view of the business. They have a long term view of they try to accomplish, whether it's in community members, and with their customers. So so for us, it it just made a ton of sense that our next chapter should be with a partner with, with National Scale and, and, you know, giving us more firepower to, to grow our business and and really for our and and our, of course, as well. And then the other thing I I wanted to ask you about is yourself said that, you know, part of the the brand's strength And I would have thought that your brand positioning is a lot Farm Boy then than it is to so be and so articulate, like, how you think about your positioning and your best card about a differentiated position versus Farm Boy? Sure. Happy to answer that. It's a great question. You know, I have a lot of respect for what Farm Boy has done. You know, they did great job of building that business, and and that was a family business as well that that scaled in a few years. Pretty long in in produce. That's how we got our start in in 1956. And over the years, we've added more and more perishable department. But I think some some of the biggest differences would be in our in our creation of our center store. So we have a full stop shop market. That's that's how we've positioned ourselves. And and Farm Boy has has had a different positioning, which has worked extremely well for them and will continue to work well long into the future. But our curated center store position is is diff was, I think, what makes us different in the marketplace. And, and and then I'd say in terms of, private label, we're, you know, we're we're behind where where Farm Boy, is, but we're, still investing a significant amount, of time and effort in building our private brands, and we're looking forward to learn how they've been able to do it. They've got a tremendous following of the Farm Boy brand, and we our our following of our Longo's banner is or brand, I should say. And our Curato Italian brand is going really well, And I think we can continue to learn from each other in that in that area. So that's how I think we differentiate from them. Okay. Thank you for your comments. Welcome. The next question comes from Kenneth Tighe at ATB Capital Markets. Michael, I'm going to risk being that guy and take a crack at a long shot question here as an opener. Can you speak to you've called out the 70,000 customers on Grocery Gateway. I don't suspect you're gonna be willing to highlight the the actual online dollars. But could you speak to either customer growth over the last period or two and or just the percentage growth within that business just so we can try contextualize grocery gateway and grocery gateway sort of share and share trends over the last couple of years? Any any incremental color there would be great. Maybe Anthony could Anthony or Mike, well, you could stick away from numbers, but give a kind of maybe a some background that would help, Kenner. Sure. I'll start, and then Mike can jump in. So for Grocery Gateway, we've, we've had a great run with Grocery Gateway, and it was growing growing nicely in the in the double digits. And we replatformed Grocery Gateway about three years ago or so. And so we saw we saw some really good growth. This past year, of course, with with the pandemic, our our volume did have a tremendous increase, you know, basically doubling where it was. So it it it got ahead of where we had had projected it to be. We expect it to be where we are today, but in but in two years or three years from now. So that's been a that's been, you know, very helpful, of course, and people have, you know, stuck with with buying online. And I think we think that that's gonna continue to be a strong growth strong growth opportunity for us. And the comments we're getting back just anecdotally from well, I guess, than I don't know because it's hundreds of people have written to us to say they can't believe how easy it is to to shop online with Grocery Gateway and and how easy it is for for, you know, millennials to be shopping for their parents, for example, and get, you know, grocery stores. They don't have to worry about mom and dad leaving the house and things like that. So yeah. So it's been really good growth for us, and we're looking forward to continuing to to grow it on top of what we've grown last year. Mike, did you wanna add anything? Nope. I that was a great great answer. Thanks, Anthony. Perfect. Thanks, Anthony. And then if I could just a separate one. You know, one of the other call ups here on has been, you know, the unique loyalty program, one with which I'm familiar. Within the sort of confines and constructs, Michael, your AIR MILES agreement, AIR MILES loyalty program, can you speak to the ability or the want to perhaps take some of those learnings or some of the opportunity from what Longo does well in loyalty and in positioning that loyalty proposition and and whether you'd look to be able to or able to use any of that, within your broader business. I mean, yes, it's unique. It's it's attractive and well positioned. But are there some some obvious learnings there and some obvious ways for which you can, yeah, tweak your messaging or improve your loyalty proposition or positioning, taking the learnings from the longer program? Absolutely. Absolutely. Learnings. And, you know, we we we haven't been able to trigger every single thing because of competition rules, etcetera, that get in the way of that at this point. But but we've had certain discussions that we're either allowed to have in terms of talking about the loyalty program, and and I think long goes in in for, you know, for a company with it's big, but it's not as big as as many. Like, 1,100,000 has done an amazing job in terms of the loyalty program and understanding their customers. And that's exactly the kind of thing that we'll be talking about in terms of how we we can we can learn. By the way, just got a got an email from CEO of AIR MILES, and he's very happy. He liked the deal. So that was that was good as well. But but I think there's learnings all over these things. I mean, we have we have one of the best marketing groups in the country in any retailer or any company. I think there's there's things that we can you know, that that Anthony's team can learn, and there's probably more that we can learn. So that's you're right on that that's where we'll aim. But all the while, not changing the customer facing proposition other than make that make it better. Thanks, Mark. And just one Thank you, Mark. Just one quick final one. Just on center store and assortment. Your mind, is there an an obvious and near term opportunity with respect to, again, using the data that both parties had to perhaps further enhance the long go center store and center store assortment, given we all know how strong long goes in fresh. But are there any obvious opportunities? You've touched on procurement, logistics, etcetera. But are there some very obvious near term assortment type opportunities that could help drive increased share of the total grocery wallet being directed through through a Longo store? Okay. The short answer is, of course, and and we'll work towards that. At the same time, that's gonna I mean, Anthony's gonna drive that on the long list side, and we'll make and and we'll make available everything we have from real estate to logistics logistics to to our our our great data analytics team if that's what Anthony wants to do, if it makes sense to him and his team. At the same time, we're gonna wanna understand better some things that he he understands, especially in the side of the store as well and in produce. So, yeah, it's it's gonna be a learning. Just, you know, in it's tough. This is the news, Taz. I mean, we've been doing this for two years with Patel and Jeff over at Farm Boy, and and Jeff was so helpful, by the way, in working on this on this deal. And I I think, Anthony, you and Jeff have been friends for a long time as well. And so, yeah, there's just there's just learnings that we had here to to better serve customers. But and and I think all of us have the same attitude that we don't have all the answers and by, you know, by just trading information and we can serve our customers better. And although although over at Empire, we we may be larger, we are we are we're not overly proud. We we we learned so much from Farm Boy, and we're gonna learn a ton from, Longo's. Thank you. Congrats, and good luck. Thanks. Thank you. Thanks very much. Thanks for the questions. Thank you. The next question comes from Patricia Baker at Scotiabank. Please go ahead. Good morning, everyone. My first question is for you, Anthony. Store growth has featured prominently in the last five years, and certainly, Mike alluded to the fact that we will see store growth for Longos going forward. Do you have any new stores in the pipeline currently? And if so, what what size format are you are you focused on of your three formats? Yes. We do have stores in the pipeline, and the stores are typically around 40 to 42,000 square feet, and that's that's what we kinda consider our our sweet spot. So we'll continue to to build them roughly at that side. Okay. Thank you for that. And then, Michael, if I may, and I missed part of the call, so you might might have addressed this. But when you when you joined Empire, you know, one of the one of the the considerations was the fact that the footprint in Ontario and then more particular in the GTA was, you know, not as sound as it needed to be. And with the completion of Farm Boy and when you complete Longos and your, you know, your for the Volo platform, do you feel now feel really good sitting here in 2021 at what you're on a GTA set of assets to address that market? You feel like job's done there. Job's never done, but, boy, I'm breathing a lot easier. Let's put it that way. You know, this was this is a key market, largest market, fastest growing market, and we were sorely underrepresented. Now through the improvements by the banners we already had opened through Project Sunrise and and and now Project Horizon. Our our our banners of Soviets Fresh Foodland are are are just knocking the cover off the vault. And now we have, well, Farm Boy. We're gonna have mom go soon. It just puts us in a position where not only are we competitive, we we we we won't we still won't have the largest market share, but, boy, do we have some great weapons to to to go into battle with in this in this very competitive marketplace. Okay. Excellent. And then quickly for Mike. Mike, how quickly can you get at procurement? How quickly can we get what? Sorry, Patricia. Can you can you get at the procurement synergies? Oh, after procurement. Sorry. I just didn't hear you. That's okay. Immediately. Yeah. No problem. Immediately, we've, yeah, we've we've already taken a look, obviously, on a on a high, you know, confidential basis as we've gone through diligence. So we have a good feel for where we will start. And, you know, we're gonna do it, obviously, respectfully, and we're gonna, you know, do it contract by contract, but that'll take a little while to do. But we'll we'll start we'll start immediately after the transaction closes. Okay. Thank you very much. Thank you. There are no further questions at this time. I will now turn the call back over to Katie Bryant for closing comments. Thank you, Joanna. Ladies and gentlemen, we appreciate your continued interest in Empire. If there are any unanswered questions, please contact me by phone or email. We look forward to having you join us for our fourth quarter fiscal twenty twenty one conference call on June 23. Talk soon. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.