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Sobeys Parent Company Says November Cyber Attack Cost $25M

By Scott Pettigrew Dec 16, 2022 | 6:00 AM

The company that owns Sobeys and several other Canadian grocery chains says the cyber attack that hit its stores last month will cost the company about $25 million.

In early November, Empire Co. was hit with an attack that targeted its IT systems. Until now, the company had said very little about the attack, aside from the fact that it was “impacted by an IT systems issue” that affected some in-store systems and the company’s pharmacies.

In a call with investors on December 15, Empire CEO Michael Medline confirmed the company was hit by a cyber attack on November 4.

Medline and other Empire executives wouldn’t give any more detail about the attack itself. However, Empire’s chief financial officer, Matt Reindel, estimated it will cost the company about $25 million.

That $25 million represents the cost only after Empire was reimbursed by its insurance provider. No one at the company would confirm the total cost of the attack before insurance recoveries.

Reindel did say the $25 million hit to the company came from things like shrink (which is retail-speak for lost inventory) and extra labour, as well as IT and other “professional expenses” to deal with the attack itself.

Reindel did say the company considers the attack to be a “one-time” event. He added that all of Empire’s “customer-facing” operations are back to normal but that the company is still feeling the effects of the attack in some of its systems.

Medline said the attack didn’t hamper Empire supply chains at all but that it did create some temporary problems, like shutting down pharmacies for four days, and screwing with things like gift cards and reward points.

Selling western gas stations

Empire also announced on December 15 it is selling 56 gas stations in the western end of the country to Shell Canada for approximately $100 million in cash.

Empire got the gas stations as part of its $5.8 billion purchase of Safeway’s Canadian Arm in 2013.

Medline told investors the gas stations don’t have “a meaningful convenience store business” and aren’t core to Empire’s offering.

“This sale allows us to realize the value of these assets while continuing to benefit from the foot traffic generated by these sites,” he said.

Medline said the approximately $100 million from the sale isn’t a huge deal for a company the size of Empire, and that it will use the cash from the sale for “general corporate purposes.”

Empire expects the deal to close in the second quarter of 2024.

‘Inflation does not help our margin’

Medline also told investors Empire is dealing with cost pressures related to inflation that is hurting the company’s gross margin. He claimed the company can’t pass all inflationary expenses onto its customers and must eat some of the cost.

“We can’t pass it all on and we don’t pass it all on,” he said.

RELATED: Sobeys Boss On Rising Profits: ‘I Refuse To Apologize For Our Success’

In its financial statements, Empire reports that its same-store sales, not including the cost of fuel, were up by 3.1 per cent last quarter. Its gross margin, also excluding fuel, was up 58 basis points.

Medline claimed Empire’s strong quarter was driven mostly by “promotional optimization” and sales of its branded product.

He claimed those factors, and others, allowed Empire’s grocery stores to “overcome inflation headwinds.”

“It might surprise many, but we pray for the end of inflation,” he said. “It’s just not good for Canadians  or consumers [and] it’s not good for our business.”

“Inflation does not help our margin; it does not help our company,” Medline claimed.

Trevor Nichols is the editor of Huddle, an Acadia Broadcasting content partner.

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