Better Food For All

2016 Annual Report

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Building a stronger platform for growth

As Canada’s largest full service food retailer, backed by 109 years of food retailing experience and a food culture that extends across the entire organization, Empire has a long-term strategy that works. Fiscal 2016 was a difficult year for our company, but we are confident in the direction we are taking and remain focused on delivering long-term value to our shareholders.

2016 Financial Highlights

($ in millions, except per share amounts) 53 weeks ended
May 7, 2016
52 weeks ended
May 2, 2015(1)
52 weeks ended
May 3, 2014(1)
Sales $    24,618.8 $    23,928.8 $    20,957.8
EBITDA(2) (1,944.7) 1,224.9 753.5
Adjusted EBITDA (2) 1,161.4 1,321.9 1,052.8
Operating (loss) income (2,418.5) 742.4 326.7
Net (loss) earnings from continuing operations (3) (2,131.0) 419.0 151.0
per share (fully diluted) (7.78) 1.51 0.63
Net (loss) earnings (3) (2,131.0) 419.0 235.4
per share (fully diluted) (7.78) 1.51 0.98
Adjusted net earnings from continuing operations (2)(3) 410.2 511.0 390.6
per share (fully diluted) 1.50 1.84 1.63
Book value per share 13.33 21.60 20.59
Dividends per share 0.40 0.36 0.35
SALES

($ billions)

ADJUSTED NET EARNINGS FROM CONTINUING OPERATIONS (3)

($ millions)

DIVIDENDS

($ per share)

(1) Amounts have been reclassified to correspond to the current period presentation on the consolidated statement of (loss) earnings.

(2) See “Non-GAAP Financial Measures & Financial Metrics” section of the Management’s Discussion and Analysis (“MD&A”).

(3) Net of non-controlling interest.

(4) Compound annual growth rate.

PROUDLY CANADIAN WITH 109 YEARS IN FOOD RETAILING

We meet the food shopping needs of Canadians from coast to coast.

BY THE NUMBERS
  • 1,800+

    LOCATIONS*

  • 38.6M

    TOTAL SQ. FOOTAGE

  • 900+

    COMMUNITIES

  • 125,000

    PEOPLE

  • * includes more than 350 retail fuel locations

Food

Canada’s largest full service food retailer

> $24.6 billion in annual sales

> more than 1,500 stores in 10 provinces

Pharmacy

One of Canada’s leading pharmacy retailers

> 348 in-store pharmacies

> 78 Lawtons Drug Stores

Liquor

Building our position as a liquor retailer

> 80 locations

> 3 banners

Fuel

Expanding the relationship between food and fuel

> more than 350 retail fuel locations

> 3 banners

Wholesale

Canada’s largest food wholesaler

> 8,000 accounts, including retail stores and convenience stores coast to coast

Real estate

Owning and developing real estate

> strong real estate development team

> 41.5% equity interest in Crombie REIT

Exterior images of Safeway, Sobeys and IGA buildings
LOCATIONS BY REGION

Our reach

Proudly Canadian and headquartered in Stellarton, Nova Scotia, Empire Company Limited (TSX: EMP.A) is one of the country’s leading food retailers.

Our key businesses are food retailing, through our wholly-owned subsidiary Sobeys Inc., and investments and other operations, including a 41.5% equity accounted interest in Crombie REIT.

Our food retailing business is made up of a diversified and complementary group of businesses – food, pharmacy, wholesale, liquor and fuel – supported by a comprehensive logistics and distribution network of 34 distribution centres, warehouses and retail support centres, and a real estate development team that supports our strategy for network expansion and oversees our store properties across Canada.

Corporate: 303
Franchised: 94
12.5M sq. ft.

Western Canada

397

Corporate: 94
Franchised: 240
9.0M sq. ft.

Ontario

334

Corporate: 183
Franchised: 518
11.6M sq. ft.

QUÉBEC

701

Corporate: 328
Franchised: 135
5.5M sq. ft.

Atlantic Canada

463

Map of Canada
Sobeys Extra
Foodland
Sobeys Express
Safeway
Rachelle Béry
Les Marchés Tradition
Sobeys
Sobeys Urban Fresh
IGA Express
Thrifty Foods
Marchés BoniChoix
Chalo Fresh Co.
IGA Extra
Pete's Fine Foods
Needs
IGA
Fresh Co.
Sobeys Pharmacy
Pharmacy at Safeway
Thrifty Foods Pharmacy
Fresh Co. Pharmacy
Foodland Pharmacy
Lawtons Drugs
Sobeys Liquor
Safeway Liquor
Thrifty Foods Liquor
Fast Fuel
Safeway Gasoline
Shell

Shell Trade Marks reproduced by permission of Shell Brands International AG.

A LONG-TERM TRACK RECORD OF GROWTH

We focus on maximizing long-term value for shareholders.

Sales ($ in billions)

Book value ($ per share)

Adjusted net earnings from continuing operations ($ in millions)

Fiscal07 $13.4 $10.77 $200.1 Fiscal16 $24.6 $13.33 $410.2

10-year look back

  • 07
    AUGUST 2006

    Sobeys acquires Achille de la Chevrotière Ltée, for $79.2 million.

  • 08
    JUNE 2007

    Empire acquires the outstanding common shares of Sobeys that it did not own for $1.06 billion, achieving 100% ownership.

    SEPTEMBER 2007

    Sobeys acquires Thrifty Foods for $253.6 million.

    APRIL 2008

    Empire sells 61 properties for $428.5 million to Crombie REIT.

  • 09
    MARCH 2009

    Empire issues 2.713 million Non-Voting Class A shares at $49.75 per share.

    Empire reduces its ratio of debt to capital to 32.7% from 39.8%.

    NOVEMBER 2009

    Sobeys opens its first automated distribution centre in Vaughan, Ontario.

  • 10
    MAY 2010

    Sobeys enjoys another record year and receives credit rating upgrades from Standard & Poor’s and DBRS, with both ratings at investment grade.

    Empire reduces its ratio of debt to capital to 29.3% from 32.7%.

  • 11
    OCTOBER 2010

    Empire sells its investment in Wajax for net proceeds of $121.3 million.

    MAY 2011

    Sobeys completes the first year of the FreshCo. discount banner in Ontario with a network of 57 stores in operation by fiscal year-end.

  • 12
    OCTOBER 2011

    Sobeys initiates an organizational realignment to optimize productivity and fully capitalize on its scale.

    MARCH 2012

    Sobeys purchases 236 Shell branded retail gas locations in Québec and Atlantic Canada for $214.9 million.

  • 13
    NOVEMBER 2012

    Sobeys begins shipping from its second automated distribution centre in Terrebonne, Québec.

    MARCH 2013

    Sobeys completes its national implementation of the SAP business platform to fully capitalize on its scale as a $17 billion organization.

  • 14
    SEPTEMBER 2013

    Sobeys introduces the Better Food for All movement to Canadians.

    NOVEMBER 2013

    Sobeys completes the purchase of Canada Safeway for $5.8 billion.

    Empire completes the sale of Empire Theatres for a net gain of $104.2 million.

  • 15
    FEBRUARY 2015

    Sobeys implements SAP at Safeway, bringing SAP coast to coast.

    MAY 2015

    Sobeys becomes the first Canadian grocer to issue AIR MILES® reward miles across Canada.

    ®™ Trademarks of AIR MILES International Trading B.V. used under licence by LoyaltyOne, Co. and Sobeys Capital.

  • 16

    During fiscal 2016, Sobeys acquires 12 liquor stores in Western Canada, strengthening its position as a liquor retailer.

    JUNE 2015

    Sobeys acquires 10 Co-op food stores and fuel sites in Atlantic Canada, and begins supplying food and gas to the majority of the member-owned Co-op locations.

    OCTOBER 2015

    Sobeys acquires the grocery retail and wholesale businesses of Pete’s Fine Foods in Atlantic Canada.

Message from the Chair

Robert P. Dexter
CHAIR

The priority of Empire’s Board of Directors is to ensure the successful execution of our strategy and return the Company to long-term profitable growth.

At Empire, our goal is to create long-term, sustainable value through our steadfast focus on food retailing and related real estate, and our commitment to excellent customer service.

Empire shares have delivered an average annual compound return of 13.8 percent for the last 20 years, and in early fiscal 2016, shareholders approved the fourth share split in our history. Yet despite this long-term track record of growth, fiscal 2016 was a disappointing year for Empire. The marked decrease in adjusted net earnings, continued significant challenges with the Safeway integration, impairment charges in respect of goodwill and long-lived assets in the West business unit, and softening sales in other parts of the country led to weak overall results.

On July 7, 2016, the Board of Directors instituted a leadership change, appointing François Vimard, Empire’s Chief Financial and Administrative Officer, as Interim President and Chief Executive Officer, and initiating an orderly succession process to identify a permanent leader. I thank Marc Poulin on behalf of the Board and our employees for his efforts and leadership over the past four years and also for the important role he played in building our business in Québec.

The Board is unanimous in its support of François Vimard’s leadership and his team’s ability to advance the most critical elements of our strategy as we undertake the succession process.

François is a strong leader with a deep understanding of the business. He has held a number of senior management positions during his 21-year career with Empire and Sobeys. His appointment is the result of the Board’s strong succession planning for executive transitions, development of the leadership pipeline and commitment to strong governance.

The Board is confident that Empire is pursuing the right strategy, and has given François a clear mandate to prioritize and advance the most critical elements of the strategy to ensure we meet the needs and expectations of our customers and see the return of long-term profitable growth.

Strategic focus
We know that operational excellence and a differentiated food offering that resonates with customers are the two critical ingredients to long-term success in this business.

The long-term strategic investments made in Sobeys’ infrastructure over the past several years provide an expanded foundation for building future growth. Through our investments in SAP, automated distribution and other technology, we now have a national retail business platform and a modern distribution infrastructure that supports all of our businesses including Safeway, following the technical integration completed last year.

We continue to build on this solid platform by striving to be Canada’s Better Food Destination through a compelling and highly differentiated food experience that helps Canadians Eat Better, Feel Better and Do Better every day. It is a strategy that builds on our long history in the food retailing business and sets us apart in a highly competitive and continuously changing market where food retailers are constantly evolving their offering.

The scope and complexity of integrating the Safeway and Sobeys businesses posed significant operational and reorganizational challenges, which slowed our progress and affected our results this year, and were compounded by the economic downturn in Western Canada and softening sales in other parts of the country. While the economic factors were outside of our control, we faced a number of challenges even with careful planning, resulting in $3.0 billion in impairment charges in respect of goodwill and long-lived assets for fiscal 2016 – $1.7 billion in the third quarter and another $1.3 billion in the fourth quarter. The plan developed by management to focus on pricing, network renewal and operating efficiencies is designed to address the operational issues. The Board believes in the critical importance of these structural changes and recognizes that it will take time to stabilize the business and realize the value of the Safeway assets.

We know we must also stay focused on advancing our Better Food for All strategy. We are rolling out additional new concept stores and other store formats, focusing on employee training and engagement, and building our complementary businesses like pharmacy, liquor, wholesale and fuel.

Our relationship with Crombie REIT continues to provide an excellent source of capital for Sobeys’ expansion, as evidenced by the transaction we completed with Crombie REIT shortly after our 2016 fiscal year-end. The $418 million deal includes $360 million for the sale/leaseback of 19 retail properties and 50 percent interest in each of Sobeys’ three automated distribution centres, as well as the sale of two parcels of development land owned by Empire. In addition, Crombie REIT will invest approximately $58 million in renovations or expansions of 10 Sobeys retail locations already in their portfolio.

Strong governance
Empire’s Board is highly engaged and committed to strong oversight of the business and our future success. The Board is currently made up of 15 dedicated directors who have experience in the food business, retail, finance, law and consumer businesses, and includes five Sobey family directors, all of whom have served in senior level positions within Sobeys or Empire.

Three of our directors are women, representing 33.3 percent of the independent directors and 20.0 percent of the Board overall. Gender board diversity is important for good governance, and it is especially important because of our customer and employee demographics.

I am pleased to welcome Jim Dickson, who joined the Board last September and Gregory Josefowicz, who was appointed to the Board in June. Jim is a highly regarded lawyer and brings a deep understanding of the food business as a former senior executive of Sobeys. Greg is a seasoned food retailer with many years in both executive and governance roles in the United States, including at Jewel-Osco, Roundy’s and Winn-Dixie, together with executive and governance experience at non-food retailers.

After 12 years of dedicated service, Steve Savidant has decided to retire from the Board as of the upcoming annual meeting. Steve has served on the Audit Committee and has chaired the Corporate Governance and Nominating Committees and, for the past two years, the Human Resources Committee, providing strong leadership through changing times. Steve’s wise guidance and collegial approach to Board and committee business have been appreciated by all of us and will be truly missed.

I would also like to extend our appreciation to Bonnie Brooks, who resigned from the Board in early July. Bonnie joined the Board in 2012, served as a member of the Corporate Governance, Human Resources and Nominating Committees, and made a significant contribution during her tenure. We will miss her valuable insight and dedication and wish her well in her future endeavours.

In closing, I would like to thank the thousands of people throughout Empire’s operations, franchisees and affiliates for their work over the past year and their commitment to our future success and this Company’s legacy. I would also like to acknowledge the support of the Sobey family over many years, and the continued confidence of Empire’s shareholders.

Robert P. Dexter signature

Robert P. Dexter
Chair
Empire Company Limited

July 15, 2016

Letter to shareholders

François Vimard
INTERIM PRESIDENT AND CHIEF EXECUTIVE OFFICER

Fiscal 2016 was a disappointing year for Empire, driven by continuing challenges in our business in Western Canada.

We knew that the second phase of our Safeway integration – the integration of our people, distribution channels, private label and marketing – was going to be hard work simply because of its scope and complexity. But even after careful planning, issues with our private label conversion, our produce supply chain and our people transition presented considerable short-term challenges to the business. These were amplified by a difficult economic climate, particularly in Alberta and Saskatchewan.

Sales this fiscal year were $24.6 billion, same-store sales decreased 0.2 percent, and a net loss, net of non-controlling interest, of $2.1 billion, mainly due to the $3.0 billion in impairment charges, was recorded in fiscal 2016. Adjusted net earnings, net of non-controlling interest, were $410.2 million, down 19.7 percent from a year ago. Excluding the negative impact of fuel sales and our West business unit, same-store sales would have increased 1.5 percent.

We know that the Canadian food retailing marketplace is continuing to experience a significant shift in customer mindset, but we are confident in the direction we are taking. We also know, however, that it is going to take some time for the changes we are making to have an impact.

Three areas of focus
We are addressing our challenges by tackling the following priorities: pricing, store renewal and operational efficiencies.

1. Pricing
We are making important structural changes to our retail pricing. Through a program called Simplified Buy & Sell, we are simplifying, standardizing and harmonizing the buy and sell structure across our entire network by redefining our relationship with suppliers. Designed to increase cost transparency and allow for better category management, the program will result in better prices for our customers and improved price perception across the country. We introduced the program to our Québec stores in April, and will be rolling it out across the country. We are in the early stages of this important project and acknowledge that a significant amount of heavy lifting remains.

In Western Canada, we also launched a new brand positioning at the end of the third quarter called Better food starts here in both the Safeway and Sobeys banners, that drives home our message about lower prices. The program builds on our Better Food for All strategy, and improves the customer experience.

2. Store renewal
We know that revitalizing our stores is important for creating an exceptional food shopping experience – and critical in today’s increasingly competitive retail food environment.

We will continue with our store revitalization plans, focusing on markets with the right conditions for delivering a differentiated experience for our customers.

3. Maximizing operational efficiencies
We remain unwavering in our focus on driving efficiencies, and are aggressively tackling the integration challenges and looking for opportunities for improvement across the country.

We are streamlining our distribution network to increase efficiency in our operations, improve the service we provide to our stores and enhance our infrastructure for future growth. Rationalizing our distribution network in British Columbia, Alberta and Southern Ontario is an integral part of the solution.

As part of this, we are building on our proven capability in automated distribution because it improves the speed and accuracy of store orders while allowing us to process higher volumes at lower costs. We are currently expanding our automated distribution centre in Vaughan, Ontario to begin handling frozen and dairy/deli products beginning mid-fiscal 2017. Work is also well underway to retrofit the distribution centre in Rocky View, Alberta, just north of Calgary, which we acquired in the first quarter of fiscal 2016. This will be our third automated distribution centre, and it will supply dry groceries to all stores in Alberta, Saskatchewan and parts of Manitoba when completed.

A long-term strategy that works
In today’s fast-paced world, Canadians have more choice than ever when it comes to what they want to eat. It is a choice that can be daunting, especially if you are time pressed and do not know what to cook – or how to cook – and fast food is an easy answer.

Our vision is to be Canada’s Better Food Destination – setting ourselves apart by offering products and services that help Canadians Eat Better, Feel Better and Do Better every day – the first ingredient in a healthy lifestyle.

Our strong food culture and customer focus – combined with our emphasis on operational excellence and driving efficiencies – are helping us create a better food shopping experience that will build long-term customer loyalty. Our national partnership with AIR MILES® and the growth in our complementary businesses like pharmacy, liquor and fuel give us added strength.

Better Food for All
We continued to make solid progress on our Better Food for All movement in fiscal 2016, building on our strong food culture, developing our store network, focusing on innovation and enhancing our processes and operations to bring the best service and value to our customers. From new concept stores to new products and services, we are working hard to be Canada’s Better Food Destination.

Innovative store formats
Our new concept stores welcome customers into a world of food discovery with products, services and savings to help our customers Eat Better, Feel Better and Do Better. We had 25 new concept stores at the end of fiscal 2016, with 11 more under construction or renovation.

We opened a new Sobeys Urban Fresh in downtown Ottawa – our first Sobeys Urban Fresh store in Ontario outside of Toronto – offering fresh, delicious hot and cold prepared foods, and regular grocery items for the busy urban shopper.

We opened a Sobeys express in Antigonish, Nova Scotia, which was inspired by our IGA express banner in Québec and offers our customers a fresh take on convenience.

Chalo! FreshCo. is our new, one-stop discount shopping experience in Brampton, Ontario for South Asian food and North American brands – our first foray into the specialty market and something that we are exploring further based on the strong customer response.

Liquor and beer
We increased the number of liquor stores in Western Canada, and introduced beer to 15 authorized stores in Ontario under the Sobeys, Sobeys extra, Sobeys Urban Fresh, FreshCo. and Safeway banners.

Acquisitions
We welcomed Pete’s Fine Foods to Empire. Pete’s Fine Foods adds two popular retail stores in Halifax and Bedford, Nova Scotia and its wholesale business to our operations. In addition, we are now supplying food and gas to most of the member-owned Co-op locations in Atlantic Canada, and have long-term supply agreements or franchise agreements with each of them.

Synergies in real estate
Our relationship with Crombie REIT gives us access to capital for Sobeys’ expansion while, at the same time, allowing us to realize the fair value of our real estate assets. The relationship gives Crombie REIT preferred access to some of the most consistently performing real estate assets in the country.

Our most recent transaction with Crombie REIT, finalized shortly after our fiscal year-end, underscores the strategic benefits of this relationship.

Looking ahead
Our future success will be based on developing our strong Better Food for All culture while working diligently on our three areas of focus: restructuring our pricing, making strategic capital investments in key markets where the conditions for success exist, and maintaining a relentless focus on operational efficiencies and cost synergies across the organization.

On behalf of the leadership team, I would like to thank all of our employees for their dedication in a challenging year. I am also pleased to welcome three new members to the leadership team: Yves Laverdière as President of our Québec business unit, Beth Newlands Campbell as President of our Atlantic/Ontario business unit and Lyne Castonguay as Chief Merchandising Officer.

It will take time, but with over 109 years of experience, a strong track record and a solid strategy, we believe in the direction we are taking to see the return of long- term profitable growth for the Company.

François Vimard signature

François Vimard
Interim President and Chief Executive Officer
Empire Company Limited

July 15, 2016

CANADA’S BETTER FOOD DESTINATION

Helping Canadians Eat Better, Feel Better and Do Better

Current research shows that 43 percent of Canadians say they do not cook balanced meals for themselves or their family on a regular basis.(1) At the same time, a growing number of Canadians are concerned about the food they are eating: 65 percent have made changes to their diet to improve their general health and well-being, 59 percent claim they look for foods with simpler ingredients, and 90 percent say they read the ingredient list on foods they buy.(2)

We make a difference in the lives of Canadians by making it easier for them to make better food choices for themselves and their families.

(1) Ipsos Reid poll conducted for Dietitians of Canada, 2014
(2) Ipsos Reid, March 2015

Jamie Oliver
Jamie Oliver

Sobeys is working with Jamie Oliver to help bring better food to Canadians.

Internationally renowned chef, author and advocate for better food, Jamie works tirelessly to share food knowledge and promote the importance of balanced nutrition, quality ingredients and cooking skills.

Food Share
Food share

Across our network we have implemented a program of sharing food ideas and tips with our colleagues at all levels of the business. This concept is having a positive impact on the growth of our food culture across the organization.

Mieux manager

IGA in Québec works with three Québec food celebrities – Christian Bégin, Josée di Stasio, and Stefano Faita – to offer ways to eat healthier, cook more, choose locally and responsibly, and discover new flavours for Le plaisir de mieux manger, The Joy of Eating Better.

Mieux Manager
CANADA’S BETTER FOOD DESTINATION

See what’s in store

We are using our skills, experience and passion for food to give Canadians more choice, healthier options and an exceptional food shopping experience that is changing their relationship with food. Read on to see examples and learn more about how we are bringing our vision to life.

SUSTAINABILITY STRATEGIES

We integrate sustainability into every aspect of our business – from the products we offer and the communities we support, to the way we operate – to reduce our environmental footprint and help our customers lead a more sustainable lifestyle.

Read more about our approach to sustainability in the pages that follow and online at sobeyssustainability.com/en/home.aspx.

CANADA’S BETTER FOOD DESTINATION
1

What we
offer
our
customers

Bringing the best ingredients, more selection, healthy options and good value

Cheese
lovers
delight

Every cheese tells a story, offering a world of flavour, texture and strength.

One of the many ways we are improving our food offering is by carrying a wide selection of specialty cheese in our stores. Many stores offer over 250 varieties of cheese in nine distinct types, including Smart Choices cheese featuring certified organic, lactose-free and fat-free options.

Cheese becomes easier to select when you understand its key characteristics. We number our cheese by strength, and in a growing number of stores across the country, we pair our cheese with cheese ambassadors – expert guides who help our customers discover the right cheese for their needs, and can discuss everything from the production and aging process to nutrition, storage and handling. Many are Certified Cheese Professionals, the highest designation awarded to cheese professionals in North America.

Our five core retail food formats ensure we are meeting the food shopping needs of our customers in every market in which we operate.

Sobeys extra

Our new concept Sobeys extra and IGA extra stores welcome customers into a world of food discovery with extra departments, products, services and savings that are designed to help them Eat Better, Feel Better and Do Better every day.

From well-being counsellors and dietitians to chefs, pharmacists, fish mongers, expert butchers and cheese ambassadors, extra employees bring added knowledge and enhance the shopping experience.

Sobeys Urban Fresh

Sobeys Urban Fresh stores are designed as a one-stop grocery destination for the urban shopper, featuring an assortment of fresh produce, regular grocery items and a buffet of hot and cold prepared foods to go.

Our new store on Metcalfe Street in downtown Ottawa also offers a sushi and noodle bar, a café, extended hours and easy access to complimentary parking.

Foodland and Bonichoix

Foodland serves the routine and fill-in needs of smaller communities in Ontario and Atlantic Canada, while Bonichoix serves the same needs across rural Québec.

These stores serve as local community hubs, selling food including a unique blend of fresh baked goods, ready-to-eat salads, fine cheese and a range of other popular grocery products.

Chalo! FreshCo.

Chalo! FreshCo. is our new discount store in Brampton, Ontario, which caters to the rapidly growing South Asian community and others interested in South Asian food.

Chalo, which means “let’s go” in many South Asian languages, invites shoppers to a traditional FreshCo. offering of popular North American brands, plus thousands of South Asian products including rice, spices, lentils, fresh produce, seafood, halal and non-halal meat counters, as well as Amaya, a popular Indian restaurant.

IGA express

IGA express is redefining convenience for Québec customers on the go, offering a unique blend of a supermarket, convenience store and bistro. Customers can choose from fresh fruit, vegetables, meat and bread, wine and microbrewery beer from a special temperature controlled room, a variety of 20-minute meal solutions and more.

Building on the success of IGA express, we have extended the convenience model to the Sobeys banner, and opened our first Sobeys express in Antigonish, Nova Scotia in December 2015.

SUSTAINABILITY STRATEGIES

Reducing food waste

Every year Canadians waste $31 billion in food. This year, we announced a plan to help reduce that by committing to a 50 percent reduction in food waste from our direct operations by 2025.

Odd-looking produce
Last harvest season, IGA and IGA extra stores in Québec sold 3.6 tonnes of Québec grown misshapen fruits and vegetables at an average discount of 30 percent during a six-week campaign. Customers know that odd-looking produce offers the same taste and nutritional value as regular produce, and sales jumped by 24 percent for cucumbers, carrots, tomatoes, beets, sweet peppers and apples.

Helping our customers reduce food waste
Nearly half of the food waste in Canada occurs at home. Here are two ways we are tackling this issue:

  • IGA merchants teamed up with Le Jour de la Terre Québec and La Tablée des chefs to hold 100 workshops (“À vos frigos”). These unique workshops provide customers with tips and tricks to reduce household food waste, like creating shopping lists, buying quantities according to the amount of portions needed, recipes for getting the most out of purchases, and great ideas for cooking with leftovers.
  • Safeway stores partnered with Metro Vancouver and the Love Food/Hate Waste program to help people get the most out of the food they buy. The program, which included in-store activation in 10 Safeway stores in Vancouver, was supported by radio spots in all Safeway store communities in British Columbia. The program offered storage tips to extend freshness, seasonal menus prepared by the North Shore Culinary School, and information about portion calculation and ’best before’ dates.
CANADA’S BETTER FOOD DESTINATION
2

Where our
food
comes
from

Spending time with suppliers to ensure quality right at the source

Fresh
fish and
seafood

We offer high quality and a broad selection at affordable prices.

We make it easy to choose the best fresh fish and seafood. The employees at our seafood counters help customers navigate the many options available – whether it’s mussels from Prince Edward Island or salmon from British Columbia. They also offer storing, cleaning and cooking tips to help create the perfect meal.

Our Better Food Guide to Seafood, just one of the online food guides in the Better Food For All section of the Sobeys website, also provides a wealth of useful information, including the most popular choices of fish and shellfish, suggested serving sizes, and how to tell when fish is at its peak of freshness.

We are investing more time with suppliers to ensure the highest quality right at the source and strengthen relationships that will guarantee us access to the best products at affordable prices for our customers.

Fresher produce
Fresher produce is better and tastier. We are improving every aspect of our produce chain – from the farm to the plate – to bring customers the freshest produce at the best possible value.

Our new sourcing office in Arizona along with our existing Florida office allow us to be closer to U.S. growers to source quality imports at the best possible cost. We have also added quality control vendor relationship specialists on both coasts to conduct regular inspections to ensure we receive the best quality and freshest products the growers have to offer. With the sourcing offices and quality control focused on our imported product offering, our regional teams can spend more time with local and domestic growers in Canada.

Local
We have strengthened our relationships with local farmers across the country, creating a positive impact on local economies and reducing the amount of energy used to transport the goods to our stores.

Quality meat
We are committed to sourcing local Canadian meat first, but will always look for opportunities to provide our customers with the best value. Our Certified Island Beef, for example, is the result of a partnership between Sobeys, the Cattle Producers Association of Prince Edward Island, the Food Island Partnership and Atlantic Beef Products Inc.

Our customers are increasingly concerned about animal welfare and the use of antibiotics and steroids in animals used in food production. Our new meat packaging identifies the source, and makes it easy for customers to select products by age or cut, or to choose Certified HumaneTM, air chilled, grain fed or raised without antibiotics or added hormones.

Getting fresher produce from field to table: here’s how we do it

SUSTAINABILITY STRATEGIES

Humane treatment of animals

Better food comes from better sources. We are committed to the humane and respectful treatment of all livestock animals within our supply chain, including beef, dairy cows, laying hens, poultry and pork.

Canadian beef
In fiscal 2016 we became an associate member of the Canadian Roundtable for Sustainable Beef, and collaborate with fellow stakeholders from the beef value chain such as Cargill, World Animal Protection and the National Cattle Feeders Association to advance the sustainability of the Canadian beef industry.

Milk-fed veal
We support the work of the Veal Associations of Québec and Ontario in their recommendation to transition from individual stalls for milk-fed veal production to group housing methods by December 2018.

Fresh pork
As a member of the Retail Council of Canada, we support the Canadian Pork Council’s process to update its Codes of Practice in support of good animal welfare. Our goal is to source all fresh pork products from sows raised in alternative housing practices defined in the updated codes by the end of 2022.

Cage-free eggs
We are working with the egg industry to transition to a completely cage-free offering in our stores by the end of 2025. This change in egg sourcing will improve the welfare of laying hens. Through our membership with the Retail Council of Canada, we have been working with other retailers and animal welfare organizations to develop and implement best practices regarding the care and handling of laying hens.

CANADA’S BETTER FOOD DESTINATION
3

How we
distribute it

Operating efficiently to provide freshness and quality at the best price

Fresh
produce
and more

We offer more in freshness, more in season, more in local.

Our focus on distribution efficiency helps ensure our stores carry a wide selection of the freshest fruit and vegetables – from fruit and leafy greens to root vegetables, herbs and more – at the best possible prices.

At the same time, we help our customers learn about how to get the most from their fresh produce. Advice from store staff, in-store displays, and online tips and guides tell our customers how to maintain freshness at home, so produce will last longer. Customers also learn about varieties, taste, ripeness and cooking, including how to select tomatoes by sweetness, potatoes by use, and alternatives to choose when a favourite is not in season.

We focus on logistics, warehousing and transportation to bring great products to our stores faster and more cost-effectively, and ensure freshness and quality at the best price.

Integrating our point-of-sale infrastructure with distribution and logistics is key to ensuring we deliver the right products to our stores at the right time and at the right cost.

We are leveraging our distribution capability to make sure we operate as efficiently as possible and maintain our competitive advantage.

Above: Our distribution centre in Terrebonne, Québec uses state-of-the-art technology to improve efficiency and service to our stores.

Automated distribution
Our two automated distribution centres for dry groceries (Vaughan, Ontario and Terrebonne, Québec) were the first of their kind in Canada. Using WITRON Integrated Logistics warehousing and picking technology, both centres assemble customized pallets that pack more items in less time and with more accuracy than methods used in traditional warehouses, improving our efficiency and store deliveries.

Both centres are also scalable to support the growth of our business; and we are expanding the Vaughan distribution centre so it can handle frozen and dairy/deli products starting in mid-fiscal 2017.

Work is also well underway on our third automated distribution centre in Rocky View, Alberta. Slated to begin its automated operations by the end of fiscal 2017, the Rocky View facility will warehouse dry groceries and support our stores in Alberta, Saskatchewan and parts of Manitoba.

Network harmonization
We also remain focused on continuing to drive efficiencies throughout our distribution network by optimizing and rationalizing existing assets in the network. In fiscal 2017, we will consolidate our two conventional Ontario distribution centres for meat and produce, and rationalize our Sobeys, Safeway and Thrifty Foods distribution centres in Western Canada as part of the Safeway integration.

SUSTAINABILITY STRATEGIES

Saving energy

In our stores, distribution centres and offices, we are working to reduce our energy consumption and implementing systems to reduce our environmental impact. Our energy conservation efforts have reduced our electricity consumption by approximately 12 percent – that’s equivalent to the electricity used by 3,600 Canadian homes each year.

Building design
We use the Leadership in Energy and Environmental Design (LEED®) standards to guide the construction and renovation of our stores, distribution centres and offices. LEED® is a voluntary, consensus-based standard administered by the Canada Green Building Council.

This year our automated distribution centre in Terrebonne received LEED® silver certification. The centre has an energy efficient lighting system, electronic sensor faucets to conserve water, a white roof made of recycled materials, a heat recovery system for collecting the waste heat produced by conveyor belt motors and other automated equipment to warm the building.

Refrigeration
Traditional refrigerant systems are known for their high contribution to global warming because of the chemical properties of the fluorohydrocarbon (HFC) gas used as a coolant. We have switched from using HFC gas to carbon dioxide, a natural refrigerant, in all new builds and major retrofits for our full service stores (approximately 98 stores). This has reduced the global warming impact of normal operating leaks by over 99 percent, and made Sobeys a North American leader in natural refrigerant systems. We have received recognition for this from the United Nations Environmental Program, the United States Environmental Protection Agency, the Retail Council of Canada, North American ATMOsphere 2016 and others.

CANADA’S BETTER FOOD DESTINATION
4

How we
create
the
best shopping
experience

Having all the key ingredients for the best food shopping experience

Wine,
spirits
and beer

A great selection that pairs with every taste and budget.

We continue to focus on innovative ways to better serve our customers to enhance their shopping experience. We added 17 new liquor stores this year – including 12 by acquisition. Two flagship stores in Saskatchewan – Stonebridge in Saskatoon and Rochdale in Regina – have a wide assortment of wine, spirits and beer, and a 360° tasting bar where customers can sample any beverage featured in our weekly flyer.

We also now offer beer in 15 authorized stores in Ontario under the Sobeys, Sobeys extra, Sobeys Urban Fresh, FreshCo. and Safeway banners. Customers can choose imported, craft and domestic beer in six-packs, single cans and bottles. Weekend beer and food tastings and promotions help our customers find a better accompaniment to complete any meal.

Passionate employees mean better service, more effective selling, more satisfied customers and a culture that fosters new ideas – all key ingredients in creating the best food shopping experience.

Customer relationships
We survey customers three times a year to receive feedback and drive our continuous efforts to meet their needs; surveying over 370,000 customers this year. We are building on these relationships by engaging more customers, more often, to help us continually improve. We are moving to continuous research over the coming year so we can receive constant feedback and calibrate more quickly.

Employee engagement
We have learned from experience that having highly engaged employees helps us deliver the best shopping experience, more satisfied customers and ultimately stronger financial performance. We have been surveying employees for the past several years, asking them about 12 elements that matter most to them, and taking action on what we learn to increase engagement right across the organization. For example, we are investing more time in development – ensuring employees have the right knowledge, training, coaching and individual development plans for a clear path ahead.

Testing new ideas
Store renovations are an ideal opportunity to test new ideas with customers, like the physical location of certain departments.

Knowing that more than one in five Canadian households buys Nutella®, we decided to surprise and delight our customers when we opened our newly renovated Spadina Sobeys Urban Fresh store in downtown Toronto, by launching Canada’s first Nutella® Café. Opened in November 2015, the café offers an assortment of fresh pastries and breads made with Nutella®, and made-to-order crêpes with Nutella® and coffee. It has been successful in increasing store sales and customer traffic.

® Trademark of Nutella owned by Ferrero S.p.A.

Above: Our expert butchers can custom cut meat for any occasion and answer questions about our wide selection of quality meat.

SUSTAINABILITY STRATEGIES

Recycling for life

We collaborate with our waste management partners in widespread efforts to reduce the amount of paper, cardboard, plastic and organic waste sent to landfill and to recover as much cardboard and plastic as possible.

Packaging
From manufacturing and transportation to consumer and end-of-life disposal, we evaluate the environmental impact of packaging at all stages of the product lifecycle and work to steadily reduce the amount of steel cans, glass jars, plastics and boxboard containers we use.

Recycling
We participate in several provincial Extended Producer Responsibility programs and fund the majority of the recycling for the packaging of our private label products. We are also assessing alternative materials and designs, and we are looking at ways to optimize packaging to preserve product integrity, ensure food safety, minimize weight and increase the recyclability of materials.

Plastic
Customers like our Sobeys Green Bag for Life because it reduces the use of plastic bags and is made of recycled material. We have seen a steady increase in sales of the Green Bag for Life since we introduced it. This year we sold close to 3 million in our Sobeys stores alone.

CANADA’S BETTER FOOD DESTINATION
5

Why
Canadians

shop with us

Helping our customers eat better – and live better – every day

Wellness

Going beyond food to help our customers focus on healthy living.

We encourage our customers to take a holistic view of their health by providing an in-store wellness area and a team of experts who offer advice and support.

Well-being counsellors in our new concept stores have a background in holistic health and are knowledgeable about all of the products in our wellness section, including gluten-free, probiotics, Omega 3 and natural source. Registered dietitians provide nutritional tips about these products and other foods, and can provide input on managing health conditions, such as lowering blood sugar or blood pressure. At select stores, they also lead free classes on topics such as properly reading nutrition labels and partner with our in-store chefs to offer classes on healthy eating. Our pharmacists are also an important resource to help our customers manage their medication and health care needs.

We make good food affordable – and offer healthy tips, convenient solutions and valuable promotions – to provide more value to our customers while helping them eat better every day.

Private label
Our private label portfolio brought together the best of Safeway and Sobeys. It features a full range of food, health and wellness products – including products from natural sources with no additives or preservatives, gluten-free, sugar-free and organic products – as well as health and beauty, baby, pet and eco-friendly household items.

Our Compliments private label portfolio is made up of more than 5,000 products that offer the best quality and value without compromising taste. We test ideas with employees and develop our products in our kitchens – always with the goal of minimizing the use of sodium, sugars, transfats, hydrogenated fats or oils and removing unnecessary additives and preservatives. All products are then tested with customers to see if they are ready for store shelves or need further development.

In-store pharmacies
Customers can visit one of our in-store pharmacies at Sobeys, Safeway, Thrifty Foods, Foodland and FreshCo. stores across the country, and have their prescriptions filled while they shop.

Customers can also get a flu shot, meet with a pharmacist to review their medication and get a better understanding of their prescriptions or take advantage of our many other services, including diabetes counselling, smoking cessation programs, pre-travel consultations and our Baby Be Healthy program.

Free fruit for kids
We are helping kids eat better, too. Every day, select Sobeys, Safeway and Foodland full-service stores offer fresh fruit in special baskets for kids to help themselves to healthy snacks.

Staying connected
We connect with our customers in every market – and help them connect with each other – through websites, Twitter, Facebook and other apps and tools.

My Offers is a new program where customers receive personalized emails every week with AIR MILES® bonus miles or cash discounts that are redeemable at Safeway, Sobeys or IGA stores in Western Canada.

Our new IGA mobile app makes eating better even easier. The app features a personalized flyer, weekly promotions and recipes, smart lists and an easy-to-use e-commerce tool that allows customers to access all products and order groceries quickly and securely from their mobile device. IGA in Québec and Thrifty Foods in British Columbia also offer online grocery shopping through their websites for their customers.

SUSTAINABILITY STRATEGIES

Social accountability

We source our products locally, nationally and globally in a responsible manner while engaging various stakeholders in the more than 900 communities in which we operate.

Supply chain
We work collaboratively with suppliers, industry groups and non-governmental organizations to help advance labour and social conditions throughout our supply chain.

We routinely request internationally recognized third-party audits for private label manufacturing facilities operating in high risk countries, and in calendar 2015, we completed 75 audits across our global supply chain. These audits are designed to have a positive impact on health and safety, workers’ rights, forced and child labour, equal opportunity and more.

Small producers
Sobeys was named a Canadian finalist for the 2015 Retailer of the Year award for our work with Fairtrade Canada, which stimulates economic activity for marginalized small producers in the developing world.

As a market leader in Fairtrade flower sales in Canada, Sobeys is contributing to the welfare of a Kenyan flower farm and its 5,000 workers. This has generated social premiums of nearly $55,000 for Fairtrade certified roses, which has been invested in education, health care and community development programs.

IGA and IGA extra are the only major grocery stores in Canada to sell Fairtrade organic bananas. Together they support approximately 400 banana producers in northern Peru and provide nearly $30,000 in social premiums.

CANADA’S BETTER FOOD DESTINATION

Supporting our
communities

Building on the legacy of the Sobey family, we – together with our business units, franchisees, affiliates and employees – give our time and invest millions of dollars every year in the 900+ communities where we live and work to improve the lives of Canadians.

About the Sobey Foundation
Founded in 1982 by Frank H. Sobey and sons Bill, David and Donald, the Sobey Foundation focuses on improving the lives of individuals through investments in health, education and community. The Foundation works with the Sobeys corporate office and individual stores to support community-based projects in Atlantic Canada and across the country.

In 2015, the Sobey Foundation and members of the Sobey family invested $3 million in youth mental health by creating the first-ever Chair in Child and Adolescent Mental Health Outcomes, a cross appointment between the IWK Health Centre and Dalhousie University in Halifax.

Dr. Leslie Anne Campbell, inaugural Sobey Family Chair in Child and Adolescent Mental Health Outcomes, is working closely with members of the IWK Health Centre’s Mental Health & Addictions team and many others to transform the way mental illness in young people is treated and tracked, closing a gap she recognized early on while working as a mental health nurse. Drawing on her clinical experience and quantitative research, Dr. Campbell leads several local and national collaborations that promote the use of outcomes research and have the potential to improve mental health services for youth across Canada.

“It was while I was working with my patients and their families that I recognized that we needed support in knowing that we were providing the right care to the right patient at the right time,” says Campbell, an assistant professor in the Department of Community Health & Epidemiology at Dalhousie University.

Dr. Leslie Anne Campbell, Inaugural Sobey Family Chair in Child and Adolescent Mental Health Outcomes

“I wanted to be sure that patients didn’t end up back in hospital when they wanted to be at home with their families, going to school or hanging out with their friends.”


The North York Harvest Food Bank is the principal food bank for northern Toronto. During an emergency relocation to a new facility, the NYHFB partnered with the Sobey Foundation in a five-year $250,000 agreement to cover all rental costs associated with its new location. Sobeys Ontario had been a long-time partner of the NYHFB, through a wide array of cash and in-kind support. The partnership has enabled the Food Bank to focus on fundraising for its core functions of distributing over two million pounds of food through 60 community programs to citizens across northern Toronto.

From grassroots initiatives to larger partnerships, we work with our local communities to make sure more Canadians – regardless of income, age or ability – have access to affordable, wholesome food, basic cooking skills and nutrition education, to help them lead healthier, more active lives and reach their full potential.

Established in 2014, the Sobeys Inc. Better Food Fund supports access to, and the advancement of, better food through donations and partnerships with national and regional charities. We support organizations that help Canadians:

Eat Better – Food access through food banks and meal programs

Feel Better – Health management, prevention and research on food-related health issues

Do Better – Food literacy through nutrition education and cooking skills training

Support for Local Food Banks
We bring our passion for wholesome affordable food into the communities we serve, and supporting local food banks and meal programs is just one example of the many ways we respond to the needs of our neighbours. Every year, we help the over 850,000 Canadians1 who use a food bank every month, and create initiatives and programs to address the increased levels of food insecurity in the communities where we operate. Support varies by local community, but can include food drives, fundraising, nutrition education and fresh and non-perishable food donations. When added together, millions of dollars and millions of pounds of food are donated to help ensure shelves are filled when the need is high.

(1) HungerCount 2015 – Food Banks Canada

In 2014, Sobeys Inc. Better Food Fund partnered with Free The Children to create Home Cook Heroes, a program designed to teach 12 to 17 year old students about nutrition literacy and food awareness. In a series of six lessons, students learn about what they are eating and the impact it has on their bodies, develop cooking skills that help them learn to prepare and make meals, and direct their new-found nutrition literacy to creating positive local and global change. The lesson plans include reading food labels, Canada’s Food Guide, the journey food takes from field to plate, eliminating waste, food culture across Canada and the importance of sharing meals. Home Cook Heroes has reached over 40,000 youth in hundreds of schools across Canada since it was formed.

Students at We Day Alberta in October, 2015.

Research shows that Canadians with intellectual disabilities have many health issues, including obesity, heart disease, stroke, type 2 diabetes and some forms of cancer. Nutrition education is critical to reducing the risk of chronic disease, but people with intellectual disabilities and their caregivers face additional daily stresses, unique healthcare requirements and the need for a different approach to understanding what is possible.

In October 2015, the Sobeys Inc. Better Food Fund announced a three-year partnership with Special Olympics Canada. Hundreds of local Special Olympics programs across the country will give thousands of Canadians with intellectual disabilities – from two-year-olds to senior citizens, and their families, caregivers and coaches – access to wholesome food, cooking skills and nutrition education.

Special Olympics athletes at the 2016 Special Olympics Canada National Winter Games, Corner Brook, Newfoundland and Labrador.

THE VALUE OF STRONG GOVERNANCE

Committed to strong stewardship and Empire's continued success

Directors of Empire Company Limited as of July 15, 2016

Robert P. Dexter(9)
Halifax, Nova Scotia
Director since 1987
Chair & Chief Executive
Officer, Maritime Travel Inc.

Cynthia Devine(2)(5)(7)
Toronto, Ontario
Director since 2013
Chief Financial Officer, RioCan
Real Estate Investment Trust

James M. Dickson(5)
Halifax, Nova Scotia
Director since 2015
Stewart McKelvey

Gregory Josefowicz(3)
Detroit, Michigan, USA
Director since 2016
Corporate director

Sue Lee(3)
Toronto, Ontario
Director since 2014
Corporate director

William Linton(1)(5)(7)
Toronto, Ontario
Director since 2015
Corporate director

Kevin Lynch(3)(6)(8)
Ottawa, Ontario
Director since 2013
Vice Chairman, BMO
Financial Group

Stephen J. Savidant(4)(5)(7)
Calgary, Alberta
Director since 2004
Chair, Enerflex Ltd.

Frank C. Sobey(5)
Pictou County, Nova Scotia
Director since 2007
Chairman, Crombie REIT

John R. Sobey(1)
Pictou County, Nova Scotia
Director since 1979
Corporate director

Karl R. Sobey(3)
Halifax, Nova Scotia
Director since 2001
Corporate director

Paul D. Sobey(5)
Pictou County, Nova Scotia
Director since 1993
Corporate director

Robert G. C. Sobey(3)(5)
Stellarton, Nova Scotia
Director since 1998
Corporate director

Martine Turcotte(1)(5)(7)
Verdun, Québec
Director since 2012
Vice Chair, Québec, BCE Inc.
and Bell Canada

François Vimard
Mississauga, Ontario
Director since 2016
Interim President and Chief
Executive Officer of Empire
Company Limited and
Sobeys Inc.

(1) Audit Committee member

(2) Audit Committee Chair

(3) Human Resources
Committee member

(4) Human Resources
Committee Chair

(5) Corporate Governance
Committee member

(6) Corporate Governance
Committee Chair

(7) Nominating Committee member

(8) Nominating Committee Chair

(9) Chair of the Board

Corporate Officers as of July 15, 2016

Robert P. Dexter
Chair

François Vimard
Interim President and
Chief Executive Officer

Clinton Keay
Interim Chief
Financial Officer

Karin McCaskill
Senior Vice President,
General Counsel
and Secretary

L. Jane McDow
Assistant Secretary