'I refuse to apologize for our success': Behind Michael Medline's fierce defence of profitable grocers
Grocers aren't ripping you off, Medline says, as industry faces government probe into whether profits are driving inflation
Michael Medline was adamant: The big grocers didn’t rip you off this year.
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'I refuse to apologize for our success': Behind Michael Medline's fierce defence of profitable grocers Back to video
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It was September and he was at the annual general meeting of Empire Co. Ltd., the second-largest grocery chain in Canada and owner of Sobeys, Safeway, IGA, Foodland and FreshCo, among others. Medline, the chief executive, took the stage and was soon on a tangent about “armchair quarterbacks.”
He was fed up with them, the progressive think-tanks, journalists and politicians who were wondering aloud about record profits at grocery chains, and whether that meant they were taking advantage of the worst inflation crisis since the 1980s. Those critics, Medline said, didn’t understand the business enough to see that big grocers were fattening margins and rewarding shareholders despite runaway food inflation, not because of it.
“I refuse to apologize for our success,” he said. “We did not get here by accident.”
The speech likely was, and still is, the fiercest defence of the grocery industry in 2022, a year in which the big grocers have become some of the most unpopular businesses in the country. But it’s not surprising that such a move came from Medline. Unlike some of his main rivals, he’s been open and blunt on a variety of hot-button issues in the past few years, sparring with legislators during the 2020 Hero Pay scandal and chastising his competitors for bullying farmers and food manufacturers.
In this particular speech, he arguably pushed the simmering resentments around grocery profits to an inflection point. It definitely antagonized politicians in Ottawa, particularly from the New Democratic Party.
“Michael Medline … is pissed that people are raising questions about how much profit the grocery giants are making,” NDP member of Parliament Charlie Angus wrote on Twitter. “He made $8.6 million last year as CEO of Sobeys. Suck it up, dude.”
Following the speech, the NDP successfully pushed the House of Commons agriculture committee to launch a parliamentary inquiry into whether profits at the grocery chains are driving inflation. Industry advocates welcomed the scrutiny, expecting that a full hearing on the subject will finally vindicate the retail chains. That process will resume in the new year.
In the meantime, it’s worth taking a look back to see what was going on behind the scenes, drawing from unpublished excerpts from an October interview with Medline.
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Sitting in his suburban Toronto office, a few weeks after his September AGM speech, Medline seemed happy with how it all went, if not a little surprised. The annual general meetings of food retail companies are typically “staid and old-fashioned” affairs, as he put it, not the sort of thing that makes the national news. His “armchair quarterbacks” remark, however, travelled far.
“When something is completely unfair, it gnaws at me,” he said. “I wasn’t sure anybody was tuning in. But I felt that something had to be said, and I said it. From business leaders and from friends, I’ve never had a better reception to anything I’ve ever said.”
I felt that something had to be said, and I said it
Michael Medline
The grocery business had both a very good year and a very bad one in 2022, depending on how you look at it. The big Canadian grocery chains — Loblaw Cos. Ltd., Empire and Metro Inc. — have posted quarter after quarter of mostly steady profit growth and spent millions on share buybacks.
That, however, has fuelled suspicion at a time when consumer trust with the grocery oligopoly was already running thin following a series of scandals during the pandemic when the grocers were accused of wage fixing, as well as bullying the farmers and food manufacturers who sold them products.
Loblaw’s president Galen Weston tried to coax public sentiment back on his side this fall by announcing a so-called “price freeze” on the No Name brand of discount products. Medline’s defence strategy was more forceful.
“I’m not going to sit here and take it all the time when I don’t think it’s fair,” he said. “Business leaders have to stand up for what they believe in, and not just take unfair, unjust attacks. If we do something wrong, I’ll be the first to acknowledge it or call it out. But I thought that this anti-company, anti-success narrative was not right.”
Medline also argued that the big, profitable grocers pay more taxes, hire more people and have enough power to push back when global food manufacturers try to push up their prices too much. But to really understand why he has been so defiant in the face of all this public scrutiny, you had to look behind him.
Behind his desk, he keeps an old piece of paper in a frame on the wall, close to a photo of the biggest salmon he ever caught, a 35-pounder off the Gaspé Peninsula two summers ago.
He doesn’t let outsiders get too close to it — the paper, not the fish — because the information on it is apparently still sensitive, but it was clear that it was a numbered page from an old business unit review — page 29, to be exact. His pencil marks are still scribbled on it. On the left side, there is a cartoonishly long red column on a bar graph.
That page, he said, was part of a financial update he received from the Empire team shortly after he was hired as chief executive in 2017.
“They try to baffle you with 100 pages or more of results,” he said.
The presenters showed him page 28, then quickly flipped past page 29, onto page 30.
“Wait a second,” Medline recalled saying. “Let’s go back to 29.”
They did, and he went silent. He hadn’t seen numbers like them before.
“We were bleeding profits out,” he said, “and we were on the way to a very unfortunate conclusion.”
Medline came to Empire after he lost the top job at Canadian Tire Corp. Ltd. in 2016, following a 15-year career there. The Financial Post at the time described it as a “surprise shakeup.” Canadian Tire’s board of directors swapped Medline for former chief executive Stephen Wetmore — a sort of Conan O’Brien versus Jay Leno scenario, where the predecessor came back to replace the successor.
After that, Medline was looking for a job.
“I had a choice of a number of jobs at that point,” he said. “I really wanted to do a turnaround.”
Empire happened to need a turnaround. The company was still reeling from its “disastrous” acquisition of Safeway Inc.’s Canadian arm and profits were falling, as Canadian Business magazine wrote around the time Medline took the helm.
“Our top‐line results were negative. Our bottom line is nowhere close to acceptable,” Medline said in his first quarterly call with analysts, in March 2017, when Empire reported a two per cent drop in sales and earnings of 11 cents per share.
“To be perfectly honest, the place was in more dire straits than I thought coming in,” he said almost six years later. “I always thought it was a seven-year turnaround, to be honest with you. I think that’s going to be about right.”
Around that same time back then, he told his team he’d take them to dinner if they hit quarterly earnings of 50 cents per share. He hired new executives, including chief financial officer Michael Vels, and moved his office from the end of a long, isolated hallway into the middle of the executive floor, with glass walls so he could see what his team was up to.
“I like glass. I like to see what’s going on,” he said. “I’m always interested, because why would this person be in that office?”
Under Medline, Empire launched a three-year plan, called Project Sunrise, to find $500 million in savings across the business. After that was successful, it launched another three-year plan, this time to add $500 million in annualized EBITDA.
Empire has also made several key acquisitions in the past six years, including the boutique Ontario grocery chains Farm Boy and Longo’s. Medline negotiated the latter deal on a bench in Toronto’s deserted financial district in the middle of the pandemic.
The company is now on track to hit its $500-million target by the end of the fiscal year, as planned, according to its latest quarterly update on Dec. 15, when Empire also reported earnings per share of 73 cents, up seven cents year over year.
Medline’s turnaround is sailing toward its conclusion at quite possibly the worst time, as his industry faces a reckoning on how much profit is too much. Economists have zeroed in on the fact that the chains have not just been growing profits, but also gross margins — a possible sign that grocers are hiking prices higher than supplier cost increases.
Loblaw, for one, has said the extra margin is coming from higher sales in their health and beauty aisles, though experts say we’ll have to take executives at their word on that because the company doesn’t provide enough detail in their public financial statements to verify it. Empire, on the other hand, has said it’s clear the margin growth is coming from the turnaround, not inflation.
“You can look at our numbers, and they tell the whole story,” Medline said. “In terms of talking about taking advantage of inflation, it is absolutely, completely untrue. I can see not one iota of data that would support that. And I don’t think our competitors are too. I don’t talk to them. But I read their results, and I don’t think they’re taking advantage of it either.”
In his office, the turnaround is everywhere. There is a doctored movie poster of The Empire Strikes Back on the wall with Medline’s face photoshopped onto Han Solo. Behind the desk, there is the fabled page 29, which he uses to warn colleagues, as in, “We can’t go back to page 29.” He also keeps a collection of pennies in a frame, which his team gave him when they surpassed his 50-cents-per-share target.
“It does upset me when people go, ‘Well, we can’t find anything, but, look, they’ve made more money so they must be (price gouging),’” Medline said. “I mean, 134,000 people in this company work really darn hard every day to improve and be successful and to hopefully grow. It’s just spurious and noxious to me to see people just tear down hard work by saying it’s all got to do with inflation. I wish inflation went away.”
But he said he also understands the scrutiny that has surrounded his business this year, to an extent.
“In times of crisis, in times of economic uncertainty … the retailer you go to the most, which are the grocers, are going to be questioned,” Medline said. “I get it. Obviously, I don’t think it’s fair in most cases. But I respect it and people can have their opinions and if it makes us a little bit sharper, and we can do even better, that’s great.”
If it makes us a little bit sharper, and we can do even better, that’s great
Michael Medline
By sharper he means that grocers can no longer be totally fixated on boosting returns for their shareholders.
“Shareholders own us and I’m totally cognizant that we have to have those kinds of returns, but we owe duties to other stakeholders,” he said. “The idea that we owe a greater duty to stakeholders, not just investors, which has developed more and more over the last decade, is an important debate. One that I agree with.”
• Email: jedmiston@postmedia.com | Twitter: jakeedmiston
