Managing through Crisis and Building a Winning Culture

October 28, 2020

The Empire Club of Canada Presents

Managing through Crisis and Building a Winning Culture

Chairman: Antoinette Tummillo, President, Board of Directors, Empire Club of Canada

Moderator
Larysa Harapyn, Journalist, Post Media

Distinguished Guest Speakers
Michael Medline, President & CEO, Empire and Sobeys, Inc
Jake Lawrence, Co-Group Head, Global Banking and Markets, Scotiabank

Introduction
It is a great honour for me to be here at the Empire Club of Canada today, which is arguably the most famous and historically relevant speaker’s podium to have ever existed in Canada. It has offered its podium to such international luminaries as Winston Churchill, Ronald Reagan, Audrey Hepburn, the Dalai Lama, Indira Gandhi, and closer to home, from Pierre Trudeau to Justin Trudeau; literally generations of our great nation's leaders, alongside with those of the world's top international diplomats, heads of state, and business and thought leaders.

It is a real honour and distinct privilege to be invited to speak to the Empire Club of Canada, which has been welcoming international diplomats, leaders in business, and in science, and in politics. When they stand at that podium, they speak not only to the entire country, but they can speak to the entire world.

Welcome Address by Antoinette Tummillo, President, Board of Directors, Empire Club of Canada
Good afternoon, fellow directors, past presidents, members, and guests. Welcome to the 117th season of the Empire Club of Canada, and today's live webcast. My name is Antoinette Tummillo. I'm the president of the Empire Club of Canada, and your host for today's virtual event, webcasted from our home to yours.

The topic today is managing through crisis and building a winning culture, featuring Michael Medline in conversation with Larysa Harapyn. I now call this meeting to order. Before we begin today, I have a few logistical items to let you know. If you're finding your internet feed is slow, click the "Switch Streams" button below. There's also a "Request for Help" button available to you, if you're experiencing technical difficulties.

I want to take a moment to recognize our sponsors who generously support the Empire Club and make these events possible. Thank you to our Event Sponsor today, Scotiabank, and our Supporting Sponsor, Level5 Strategy. I also want to thank our Season Sponsors, Canadian Bankers Association and Waste Connections Canada. And thanks to our Event Partner, VVC Communications, and LiveMeeting.ca, Canada's online event space, for casting today's event.

Again, thank you for attending today's virtual webinar. I am truly honoured to introduce today's speaker, Michael Medline, President and CEO of Empire and Sobeys, Inc. Michael Medline is a Canadian business leader recognized for spearheading historic transformative change at two of Canada's biggest retail companies. Joining the Empire team in 2017, Medline rallied Empire's workforce behind his sweeping vision to revive the retailer and executed one of the most effective turnaround strategies in Canadian retail history. His successful three-year plan repositioned the company's brand and earnings, creating a deeper connection with customers and communities, empowering its business leaders to drive innovation and growth. In 2018, Mike was named CEO of the Year by The Globe and Mail.

Today, Michael will be speaking to us on the incredibly timely topic of managing food prices and building a winning culture. With Sobeys Inc. transforming into essential services overnight, we can all learn a tremendous amount from Michael. Michael not only acted quickly to steer his teammates through a challenging period, but also emerged as a leader during the biggest crisis ever faced by a food retailer. He also helped position the company to keep pace with the rapid acceleration of retail in this new era.

Joined alongside Larysa Harapyn, a seasoned journalist with Post Media, which includes National Post and Financial Post, we are sure to see a very dynamic conversation unfold. Following this session, we will be welcoming all of you to participate in the Q&A with Michael, so take advantage of the question box to the right of your screen.

Please join me in giving a very warm welcome to Michael Medline and Larysa Harapyn.

Larysa Harapyn, Journalist, Post Media
Antoinette, thank you kindly. Hi Michael, how are you?

Michael Medline, President & CEO, Empire and Sobeys, Inc
I'm doing great, and thank you, Larysa, and thank you for everyone being on the line today. I know you have lots of stuff to do, so I'm very happy you tuned in.

Larysa Harapyn
The Empire Club has introduced something new this year. If you talk over me and I talk over you, they're gonna mute us. In keeping with these debate formats south of the border, we wanted to distill this conversation into a few topics. Let's talk about the impact of COVID-19, your relationships with the suppliers, sustainability, the federal government, of course, introducing a ban on plastics, the future of retail. Michael, do we need bricks and mortar? And of course, the future of retail in Canada. We're also curious to get your take on Canada's economic recovery. Michael, are you following what's going on south of the border?

Michael Medline
Yeah, unfortunately, I am. I've got a lot of nervous friends who call me every night wondering what's going on. So, I think it'll be good six days from now, and hopefully, we'll know what happened down there.

Larysa Harapyn
Does it ultimately impact your business at all in any way?

Michael Medline
I don't think so. Our business—I mean, I think it can impact Canada, and I think it can impact our economy, which would impact us. But us, particularly, not at all.

Larysa Harapyn
There is a word that has been used, and perhaps overused, in the last eight months to describe what has happened in the last eight months, and that is: unprecedented.

Michael Medline
Yeah.

Larysa Harapyn
How have you managed to navigate during this unprecedented time?

Michael Medline
Yeah, you know, you can prepare all you want, you can do all the simulations of crisis you want; you're not going to be able to prepare yourself for this. And, you know, I have to think back seven, eight months ago now, and what it was like. And it is, it was a blur, it was an absolute blur. We were moving as quickly as we could. And the only way to get through this was to get back to basics, and a few key priorities. And we got it down, we distilled it down to three priorities: keep the stores open, keep those shelves stocked, keep our teammates and customers safe, and give back to the communities, in terms of philanthropy. And that's what we did during that period of time, and we stayed true to our values throughout that time. And that's how you have to act.

And so, our team, including me, we worked around the clock from wherever we were. And the team did a great job. But you've got to think back. There were no cars on the road, there's almost no retail open—it's grocery stores, liquor stores, and pharmacies. And we just had such a duty. We don't necessarily think of ourselves as essential services. But for a number of months there, we were an essential service. We had to keep people safe, and we had to keep them fed. And we didn't know where this was going. It was a very, very scary time, and indeed unprecedented.

Larysa Harapyn
It really brought to the forefront Canada's manufacturing. You saw breweries making hand sanitizers, you saw auto parts companies making ventilators, we saw winter parka companies now pivoting, making gowns and PPE equipment. It brought into question supply chains. And I am wondering, do we have strong food supply chains?

Michael Medline
Well, I think this proved that we do have strong food supply chains. I'm not gonna sugarcoat it, I'd like to be transparent: it was hanging by a thread back in March and April. And we were being asked to run our stores, run our supply chains, at a level we didn't actually think was possible. Our great supplier partners throughout the country were doing things they never thought were possible. And then people who supply had to do that, too. It was hanging by a thread, we made it through because we worked together, because we innovated, and we partnered across the country. Everyone was helping each other. We were in constant communication with our supplier partners. Someone had medium eggs, but not large eggs, because they also supply restaurants, which were now closed—we'll take the medium eggs, we'll help you, we'll help our customers out. And, you know, this isn't just Empire; the grocery industry, all the CPG companies, their providers, the farmers across the country—kudos. We held it together because we worked together. It shows you what a great country we have.

Larysa Harapyn
I want to go back to something that you had just mentioned. Realizing that now, grocery was an essential service. Grocery stores had come together, I want to say, in a matter of sorts, and introduced a pay increase for frontline workers—hero pay, if you will call it. It highlighted, perhaps, what we had needed. But it also highlighted, perhaps, a lapse in the sector. In the summertime, yourself and two other Canadian grocers were called to testify before a Parliamentary Standing Committee. Indulge me, here, for a moment. The reports seem to be that Loblaw and Metro had raised eyebrows. Do you feel that you were unfairly penalized by how it all went down?

Michael Medline
The short answer is yes. And I think not only Empire, but I think that those two grocers were unfairly invaded against or impugned. We were doing everything possible to keep people safe, to treat our teammates well. The three grocers who you just mentioned, including us, put in, in our case, a hundred-million-dollar bonus plan to pay our heroes—because they are heroes. They came to work in the dark, they came to work not knowing what's going to happen, they came to work when no one else was going to come to work, and we recognized that. And by the way, these three grocers were the ones who paid hero pay—some didn't—kept it in the longest, and it was richer, in terms of hero pay. Then when the economies opened up, and everyone came back to work, and all the retailers are open, we phased it out. We kept it around for a while, and then we phased it out. And so, I think that we did the right thing. I think in North America, you'll see that we, at Empire, and others that you just mentioned, did a great job and led the way.

And so, it was somewhat obnoxious that we were called on the carpet. But I understand these things. You know, its politics, it's PR—but I really think that we did a great job. And we've also said that we would put in an employee discount. This month, we're putting in a 10 percent discount for all our teammates in the stores and across our supply chain. And if COVID rears its ugly head and like in March and April we go to lockdown, we'll put back in something looks a lot like hero pay. So, I'm proud of what we did, I'm proud of what the industry did. But you always, you know, we can take it. We can take questions. And we should be able to answer them. You know, when we were called in from the parliamentary inquiry, you know, there were some showboaters. But I would say that most of the MPs really, really care about Canadians. They cared about our teammates. There was a guy, Brian Mass, and I think he's the MP for the NDP, MP for Windsor-West. He asked us tough questions. But I could tell he cared about people. And I don't care about getting tough questions. I just care if you care. So, yeah, it's probably unfair, but so what? We answered the questions.

Larysa Harapyn
I hear you mentioning that if we go into a second lockdown that you will implement some new measures, and I'm just wondering what is it that you learned from the first time around? Because all the numbers now point to the fact that we are in a second wave. What did you learn from the first time? What would you do differently this time around?

Michael Medline
Yeah, I mean, I don't want to sound like a certain politician who says I didn't learn anything—like, we did learn a lot. And we, look, this was all new, we were inventing it. We were the first to put in plexiglass in North America. Why? Because we were benchmarking across the world. And we talked to an Italian retailer who had tried plexiglass, and we put it across our network in three weeks. The industry and that—well now, I can't go anywhere without seeing plexiglass. It must be a great business. But I, well, it was inventing things, and innovating, and figuring out on the fly what the safest way to treat people. And I'd say that we're ready. We always thought there would be a second wave, maybe a third wave, whatever. And our viewpoint was, why don't we just prepare for it, and never take our protocols down? And so, we haven't loosened our protocols. They're strong now as they ever were. We're ready. Our real worry now, to quote Game of Thrones, is that "winter is coming." Winter is coming. It could be very bad. We have to keep people safe, and we have to be able to allow them to come in and get the food.

We are looking at innovations in our stores. It's going to be cold; we don't want people lining up outside, but we want it safe. So, we're going to do some structural changes to our vestibules to allow that. Where that doesn't work, we're going to put in structures, so people are protected from the elements where they need to be. We are now about to pilot some innovative technology for queuing, that if it's cold out or it's snowing out or it's sleeting out, we'll let you know. You can sit in your car and stay warm, stay out of the elements, we'll let you know when you want to come in, when you can come in. And so, in certain locations, we're going to be able to do that. So, we're always innovating and getting ready, and we're also ready in terms of supply chain. Working with our great supplier partners and getting ready for that.

Larysa Harapyn
I heard you say just a short time ago, kudos to the farmers. And that lends itself to our second topic, with respect to the relationship between retailers and suppliers. Michael, how important is that relationship between yourself and the supplier?

Michael Medline
Well, we saw, didn't we, how important it was when it was put under the microscope, under the heat of the pandemic. We saw what it was like when we work for the national good, when we innovate together, when we move with velocity—I love the word velocity—you got to move fast. We became partners, we were in constant communication, our whole team was. How do we get products to our customers? How do we make sure those shelves stay stocked? We were communicating, communicating. And it showed us what life could be like when we work together. And look, we're joined at the hip. The whole food supply chain has to work in this country. You know, the farmers do such a great job. The transportation companies, the unsung heroes, who bring—the truckers—our supply. We talk a lot about the stores. But what about the people who work in the distribution centers, and then our great supplier partners who really saved the day for this country?

Larysa Harapyn
There seems to be a standoff happening. Recent reports have indicated that some of your competitors, Walmart and Loblaw, have been, or want to impose fees on suppliers. Your thoughts on these complaints from suppliers that are feeling bullied by these grocery stores?

Michael Medline
Yeah, so let me take a step back, and I'll answer your question. Look, this is the worst relationship I've ever seen in my couple of decades in retail. I was in hard goods or general merchandise—Canadian Tire, Sport Check, and Mark's, and in soft goods. And I wasn't used to coming into grocery and seeing the kind of relationship that went on between supplier partners and the retailers. And I didn't think it was healthy, and I've been quite clear in the past that I don't think it's healthy. Some of the practices, like the ones you just mentioned that have been in the news right now, are, for me, hard to believe, and repugnant, actually. And taken to the extreme, some of these behaviours are just plain bad for Canada. And that's our view at Empire. They're bad for the consumer goods companies and for clear reasons—they feel bullied. It doesn't seem fair. That in turn hurts our farmers, who we have to take care of. It's not good for small mom-and-pop food retailers—how can they compete with that? It's terrible for consumers when things like this happen because the fear is that it's going to raise prices for consumers, which we've been resisting with all our might. And it's even unfair—don't cry for us—but it's even unfair to large grocers like us who try to play by the rules, who try to play fairly, and want a good food supply chain. You know, when this doesn't work—and often in Canada, it doesn't work—it discourages innovation, in terms of products. It hollows out our country, in terms of head offices for CPG companies and jobs. And it's just not right.

Now, let me—I'd like to look at things in a balanced way. It can cut both ways. When I joined Empire, we were being gored by CPG companies, some of them. Were taken advantage of because we weren't a national company, we didn't have our act together. And we were getting taken advantage of. So, we have to have a level playing field. But we'll do it the right way. And sometimes, I gotta admit, CPG companies complain to me or to us about what is plain good old-fashioned negotiation. That works. But some of what we're seeing right now, what's in the news? Come on. Come on.

Larysa Harapyn
Michael, ultimately, where does that leave Sobeys? What is your position? Will you follow suit?

Michael Medline
Good question, and we've been talking about it a lot, and I think I owe you an answer, which is that no, we won't follow suit. We negotiate, and communicate, and discuss things with our partners, the supplier partners. This industry, as I just said, it depends on that. Sometimes supplier partners aren't going to like what they hear, sometimes we won't. But across the board, going off each other, it does not work. And so, we will take care of ourselves, and we'll take care of our shareholders. But we'll do it in the right way.

Larysa Harapyn
Ultimately, Michael, this is part of a bigger conversation, which is the suggestions that government should be stepping in to regulate the sector. You know, the examples from Britain, you know, the examples from Australia—although Australia is more voluntary—would that help to level the playing field?

Michael Medline
Yeah, this is a tough one. But, you know, what? Yeah. I don't think a government unilaterally coming in and putting in legislation will probably help. Because it's a very complex industry and I don't want unintended consequences. We at Empire are open to a code, a code like the UK, but tailored to Canada. We're open to it now. I wasn't totally keen on it a couple of years ago, but as I've seen us go through the pandemic and I've seen some of the things that have to happen in this country, we're open to it, as long as it's based on a value of fair dealing, that it's simple and short like the UK code.

The industry can fix this. We can work together to solve it. But, you know, with two provisos: it's got to apply to everyone. You can't, you know, it's got to be fair, and it has to cut both ways. I expect, too, that there's certain suppliers need to also promise to play fair, and there could be a few rules apply to them too. But I think it's time. I think it's time that we got together as an industry, and had a set of very simple, value-driven ground rules, so that we don't get in this mess, and that we have a very healthy food supply chain. I think we can do it.

Larysa Harapyn
Most recently, the federal government did step in, and they announced a ban on single-use plastics. That leads into our third topic on sustainability. But as you have just mentioned, there are always unintended consequences. Michael, what are the unintended consequences, here, of the government's decision to try to reach this goal of zero plastic waste by 2030?

Michael Medline
Well, there's—I don't know if it's unintended consequences, in this sense, because I gotta say, in this case, I completely applaud the government. I think it's high time that we took a hard look at our use of single-use and problematic plastics. I think the issue that's really bothering me right now, as I look at it, is, is this fact that about 10 percent of what we, you know, all of us in Canada, we work hard, and we clean everything off, and we rinse it off, we put in our blue boxes, and then to hear that 10 percent of it gets recycled is very problematic to me, that the infrastructure to recycle is not there.

So, we have to do two things: we have to get rid of plastics that we don't need—and we can do that, we can do that over a proper time period working together with the CPG companies, we can do it, especially if there's clear code. And we have to invest in more recycling, you know. We took a leadership role in this. What the government's asking for by the end of 2021, what they're proposing, is it's not that difficult. In most cases, we're already moving toward that. We are getting rid of all the plastic bags, the checkout bags across the country. We've already done that in all of our Sobeys banners, we've done it in all of our IGA, and we've done it all through Atlantic, and in all of our banners. Customers love it; they like to do the right thing for the planet. We have teammates and customers asking us to do it. It isn't that difficult. And many of the things that the government is suggesting, we would do anyway. And I think it's good that they're urging people to do it, and I think we should. Again, the industry can fix this. We can create a safer planet. The only thing I would say is you've got to always remember—and this is an unintended consequence—we've got to make sure we don't increase food waste; that's a big issue as well. And we have to keep people safe. Food safety is paramount. So, within those parameters, we can do a lot to really improve the environment. And, you know, despite what I said about legislation before, kudos to the government to push us in this direction.

Larysa Harapyn
But Michael, I'm wondering, how realistic is it, given that we're in this COVID crisis, and single-use items have been so prevalent now? How realistic is it to implement this kind of strategy, I don't want to say now—but given what we're going through? Can businesses make this pivot or this change? It's going to revolutionize, I think. Will it not?

Michael Medline
That's a great qhuestion, Larysa. And, you know, in the first number of months of the pandemic, you know, if you'd ask us to do anything other than our three priorities, we would have just—we would have fallen down. Now I think it's time, even during the pandemic. We have the protocols in place, we have the food supply chain in place, people are safe. We can't just use it as an excuse not to do things; we have to be reasonable. I think in this case, by the end of 2021, what the government has urged, and what was something we can do anyway. And we can do it during the pandemic and keep people safe. But the more the government, the supply chain, including farmers, our supply partners, the retailers, work together on these, we all want the same thing. We have to get rid of unnecessary plastic out of our system. And it isn't that difficult as long as we think it out correctly, that we're aligned, and that the timelines are reasonable. We can do it.

Larysa Harapyn
Well, Michael, it seems like you have a lot of foresight into the horizon. I want to get into our fourth topic, which is the future of grocery retail. Do you think people are going to continue visiting these bricks and mortar stores?

Michael Medline
Yes, they will. And for the—I can tell you that we talk about e-commerce a lot. And I love innovation, and I love e-commerce. And I'm only gonna do one plug here, Voilà, which we just introduced into the GTA, is the best e-commerce. That's my plug for the day. Okay, I'm done.

Larysa Harapyn
You have the floor. You have the floor for one hour. Go ahead, plug away.

Michael Medline
No, I don't want to overdo it. This is the Empire Club, you know, I've, I've got to respect that. So, yeah. But, you know, we fool ourselves to think—I had a question the other day. Someone asked me, they said, "Do you think, like, 50 percent of all food is being delivered through e-commerce?" It's more like three percent, maybe four percent. So, we were behind the developed world in e-commerce, Canada was, before COVID. It was only about, depending on how you measured, let's say one-and-a-half percent was—yeah, food, was e-commerce. During the heat of the pandemic, when everyone was scared to go out, it went up to about four-and-a half percent, probably falling back to three, three-and-a-half percent today. Part of the reason it's so small in Canada is we don't have great things like Voilà, and we don't have the infrastructure in place. But even when we do, we're well behind the rest of the world, which is running double digits in some cases. But for the foreseeable future, most grocery will be in bricks and mortar. E-commerce will be sexy; it will be the highest growth. But bricks-and-mortar will be what funds all this e-commerce growth, and it'll be the heart of how people shop for a long time. And so, you have to balance. You have to be great in e-commerce, and you have to be great in bricks-and-mortar. You have to be great in both. And that's what we're aiming to do.

Larysa Harapyn
You took a huge gamble when you teamed up with Ocado, the UK-based e-commerce platform, of course, to help you launch Voilà, the online grocery service. What has been the response to Voilà?

Michael Medline
Yeah, thanks for asking. Yeah, I don't see it as a gamble because it was so—it was such a great technology. It was the only time in my entire business career where it was something that, like, I lost a little sleep, in case we didn't get it and one of our competitors got the Ocado technology, and we weren't able to have that exclusive use of it. Because it is so much better than everything else available, and customers get it intuitively. So, we've been open a few months now. The response is the best I've ever seen in my career in retail. The customer net promoter scores are through the roof, the highest. Even, even better than Farm Boy—just a little. And even without a pandemic, it would have shone through. We'd be running at capacity. It's just no substitutions. Delivery in that hour you want, picked by robots, very beautiful experience when our teammates show up at your door and they're in their Voilà, with the blue Voilà truck outside, in their uniform, respecting every COVID protocol. It's just better. And so, when you have the best mousetrap, you tend to win. So, I didn't see it as a gamble. It's going—and I won't even say it's overproof. I think the net promoter score and how customers are getting it, and receiving it's a bit better than I would have thought. But it's, it, I never saw it as a gamble. But it was a big investment. That we wanted to win, and own e-commerce.

Larysa Harapyn
But, Michael, the timing of it. We're in the midst of a pandemic.

Michael Medline
Yeah. I wish we weren't. But yeah, it worked out okay for us. It's ramping us up quicker. People appreciate the robot pick more. And, you know, I really want to congratulate the team, because we were still constructing as the pandemic hit. And to be able to stand up Voilà in the GTA during an almost impossible situation, the team of merchants, and the people who worked on the construction, and get everything set up, it was an incredible almost impossible situation.

Larysa Harapyn
You've described your operations as a "startup." Now, you're dealing with robots, automated warehouses. Forgive me, are you out of your element here? I mean, now you're dealing with a software tech company, Michael.

Michael Medline
Yeah, I know. Well, that's what innovation is. And, you know, we have the most, it really helped us in the pandemic. Because in most places in the country, we have the most automated distribution centres in Canada already. Then we have, by far, the most automated distribution centre in the world in Vaughan, supplying the GTA and much of Southwestern Ontario. Are we out of our element? No. Because for years now, retail has become so technologically, and innovation-driven, in some respects. And so, if you're not savvy at that, if you don't embrace it, if you're a Luddite, you're going to fail. And so—but this tested everything. The technology from Ocado is the highest in the world. The algorithms, the robots, but, you know, they're performing great. We haven't had an issue.

Larysa Harapyn
So, I guess, ultimately, do you get the order right? Or do the robots get the order right?

Michael Medline
Robots so far have been outstanding. They haven't made a mistake as far as I know. And when they get tired, they go and plug themselves in. You know, I do get the question sometimes, Larysa, with all these robots, are we going to have fewer people working? Right now, you know, we have over 500 people working on a facility, it will soon be over 1500 people. All the construction jobs. This creates employment. When you're at the vanguard of innovation, it creates opportunities and jobs.

Larysa Harapyn
What does a win in e-commerce look like? Is this here to stay? What about post-pandemic, are you expecting a drop in usage at all?

Michael Medline
Yeah, I think a temporary drop of usage, but a continuously higher rate of growth than any other part of retail. It is shocking how low we were, as I said, compared to the rest of the world, like the UK or the United States, in terms of the e-commerce penetration—all over the map, but especially in food. I think, now, people have checked out e-commerce with us or our competitors, and they see, and they figured it out. So, it'll be part of how they shop. Very rare to have someone who just shops bricks-and-mortar, I think, in the future, or someone who just shops e-commerce. It's going to be a combination. But it will continue to accelerate far faster than the other part of the business.

Larysa Harapyn
When you take a look at the future of retail in Canada about five years ago, when you were at the Empire Club, and you were at the helm of Canadian Tire, the title of that conversation was "Innovate or Die: Competing in a World of Digital Disruption." So, I have to ask, are we where you thought we would be or where we should be?

Michael Medline
Yeah, almost five years ago to the day, I said that. I still believe it. I think if you don't innovate, you will die. And I'm a huge fan of innovation, as you can tell from this. And we have all sorts of plans (that I'm not going to make public today). To be honest though, looking back five years ago, I'm disappointed in how little, and surprised at how little progress retail has made, in terms of innovation over a five-year period, where I thought that—and many thought—that it would explode. Other than data and personalization, where we, I think we've made some inroads as an industry, and self-checkout. Like, I admire Amazon Go, and what they're doing in terms of, you know, frictionless checkout, and on what we're doing in terms of our Smart Cart that we're learning from, and they're going to expand—it's in the Glen Abbey store now. Not much has gone on.

You know, store technology, we were way ahead at Sport Chek seven years ago than most people are today. E-commerce, as I keep saying, is still a very much smaller portion of the business than I would have expected. I would have expected paper flyers to be replaced more readily by this time, and almost on their way out. I never thought it, but some people thought drones would be delivering five years from then which would be today—I never thought that—but it hasn't happened. But that doesn't just, you know, that doesn't discourage me. I'm disappointed but not discouraged. I think that we must dream big, and I think that we will do so at Empire, and I expect other retailers will do so.

And, you know, and there are other things that you can do too. I mean, I think the more, I think today our customers are more cognizant of the brand, and the value, the values of the retailer they shop, and they're looking to see, you know, do you believe in BE&I? Do you believe in sustainability? Do you sponsor the local teams? Do you give to charitable causes? So, there's a lot going on that was different than five years ago. But in terms of pure technology, innovation, it's slower than I would have thought.

Larysa Harapyn
I'm wondering whether or not a lot of, I guess, retailers would say that the pandemic has accelerated innovation and our ability to innovate. Would you agree with that?

Michael Medline
Yeah, I'd say that, I differentiate between innovation like, like blow your socks off, you walk into a store and you've never seen anything like it, to our unbelievable ability as, as human beings and, and retailers to adapt. And, and hats off to everyone in the retail industry. Like, you know, I got friends who, who run Golf Town and Sporting Life, and I'm just thinking of them, and how they had to figure out how to ramp up their e-commerce business and deliver curbside, and, and it was incredible. And, and my competitors in grocery, you know, you know—even the ones that I give a rough time, sometimes, to—and the smaller ones, and the medium ones. How they adapted to help Canadians and help customers. So, I think there's a, I'm so impressed with that, how people went out of their way—and probably lost money, actually—adapting just to serve their customers. But I differentiate that from true innovation.

Larysa Harapyn
Michael, we are approaching the end of our conversation. The final topic on the agenda is Canada's economic recovery. For all intents and purposes, you are the new kid on the block, you came in in 2017. Does the model need modernization? When you take a look at the existing culture and practices, does the model need to be changed?

Michael Medline
Which model are you referring to?

Larysa Harapyn
The grocery model. The grocery sector.

Michael Medline
I think that, I think the grocery sector, and this whole food supply chain, showed us throughout the pandemic that it is nimble, that it cares for customers, and that the, where it has to change is our relationships. We can make this a better experience for our customers and for ourselves by working more closely with farmers, with our supplier partners. I do think that we have to innovate and keep it exciting for our customers. But I do not think there's anything wrong, at the heart of it, with this model. I think we have people who—I think we have a great structure. I think we have people who, obviously, will work around the clock for Canadians. I'm proud of the whole industry, for the most part.

Larysa Harapyn
There is a concern by Canadians that grocery prices will rise. And obviously, with the impact of inflation, what does that picture ultimately look like? What can you tell us?

Michael Medline
Well, we don't like it. We don't like prices rising. We fight them at every turn. At the same time, once again, if prices rise to our, our suppliers, we have to listen to them, and we have to figure out why. If tariffs go up from the United States, if the cost of, of the supplies go up, or if the Canadian dollar, falls, we have to hear, and take care to make sure we're not hurting the industry. But the whole industry tries to keep prices low. Early on in the pandemic, there were huge, huge pressures to raise prices. For as a whole, the industry responded wonderfully and resisted that. Because a terrible thing for the industry would have been to be seen as gouging, or raising prices when Canadians needed us most. We didn't do that at Empire, and for the most part, I didn't see that across the country. But we have to be, we have to be watchful of it. And we will face inflation at some, some points. And hopefully it will be mild inflation.

Larysa Harapyn
The Bank of Canada making an announcement today that they will be holding onto those interest rates for quite some time. Tiff Macklem saying 2022, 2023. When you take a look at Canada's economic recovery on the whole, not just specific to the grocery sector, what keeps you up at night?

Michael Medline
I think what keeps me up at night, there are—is really safety and health of our teammates and customers is, is really, at the end of the day, what worries me the most. I, I that everything else can, can go on, and I can be bothered by things. Like, I, I worry about the economy and the dislocation to so many people, and—but I believe that our, our federal and provincial governments, the stimulus that they put into the system in a time of massive economic upheaval has saved us.

At this point, I worry about, and I know, you know, people think that the grocers, you know, we, we do better when these restaurants are closed—and we probably do it on the margins. But I am worried about a neighbourhood restaurant. I've been ordering in constantly from my favorite restaurants. Everyone out there, I can't plead with you enough: we've got to support small business. We have to support the places we've always frequented. Support them more than ever. I'm doing it, and I think we all have to do it. It can't just be government; we have to keep it going. And when I see stores closing, when I see businesses closing, and I see restaurants closing, it's heartbreaking. And so, although, you know, we're getting through this as Canadians—like what's impressed me the most, Canadians, how, you know, firefighters dropped off donuts at our stores during the heat of the pandemic, and people wrote chalk signs thanking our teammates, our heroes in the stores. But now we have to make sure that, you know, that we have this infusion, households are in good shape. We probably lost two, two-and-a-half years' worth of economic growth. But we'll get through this. But we gotta get through it together. But I am worried about these people who are suffering, who are unemployed, who are underemployed, whose businesses are falling. Right now, governments are really helping to prop up our economy. We gotta do our best too. Very worrisome about, worried about that.

QUESTION & ANSWER

Larysa Harapyn
I want to bring in some questions, as you and I have been having conversation. A question from Christopher: what is your brand strategy on private label? How do you compete with the likes of Loblaw, PC, how they have their own brand?

Michael Medline
Yeah, well, we—yeah, that's a great question, and thank you so much for the question, I appreciate it. It's something we've been spending a huge amount of time in the last month on, and over the last couple of years, with our executive team and our board. Private label is becoming increasingly important. It becomes even more important in times of economic uncertainty, or any uncertainty. We, over the last year, have made great strides. We've always had great quality in our Compliments, and now, also our, our great Panache brand. But Compliments has grown its market share over the past 15 months, as opposed to every other grocer in the country, from things we've been doing during the pandemic. We grew the fastest, in terms of private label—and you ain't seen nothing yet. Our team has much planned, in terms of being able to give our customers the best private label experience where customers want it; we're not just going to shove it down people's throat, so to speak. We've done a lot of customer studies where customers want to see more private label—sometimes where they want to see less. They want to have national brands. But this is a key priority for us going forward in our new project horizon, our next three years.

Larysa Harapyn
Okay. Another question from Mark, who is focusing on Voilà, and how you had to, expedited the launch of Voilà. Now, I believe, Michael, you had touched on that a little bit earlier. What do you think would be some of the headwinds for Voilà?

Michael Medline
Well, the headwinds are just time. To put in the best e-commerce solution, you have to build a state-of-the-art facility, and put in state-of-the-art technology, and robots, and staff it up with the greatest people. And so, it's just time. There's no cheating the system. It took us, from the time we first realized we could be the exclusive partner of Ocado, it took us three years to put up our first CFC, which is our big customer fulfillment centre. Very soon, we'll have one up in Montréal; we've announced that we're gonna put two more up. I think you could look west for those—I don't want to give it away, but you can probably look west. So, it's just time. But the headwinds, there are more tailwinds than anything else. And I would say the only headwind is that we will have more choice of product in Voilà, than even any grocery store. But because of the pandemic and supplier partners having to cut back on the number of SKUs, that holds us back slightly. But we're over 16,000 products already available in Voilà, and we want to get that up to 39,000 products.

Larysa Harapyn
I want to bring in a question here from Barbara, who asks: how did you communicate with your employees to keep morale high, and how did you build a strong culture throughout the pandemic? Michael, I mean, that's it, that's a tough one, a tough one to navigate, keeping morale up.

Michael Medline
Oh, my goodness. And, you know, I've been thinking that for four years. You know, like, I came in to Empire, and morale was low because we weren't doing so well. Now morale was flying high, and we hit this COVID thing, and it was tough. But we had, you know, fortunately, we'd already done everything to have the best team in place, and the best processes and disciplines in place, really helped us. But, you know, how do you, how do you—the people who are coming to work every day are our teammates. And what it is, it comes down to transparency and communicate, communicate, all the time. Sending notes, sending encouragement, sending videos to people, communicating with everyone. One of the hardest parts, other than, you know, that people are, are sick and passing away from COVID, one of the hardest parts is not being able to be with people all the time. How do you keep a culture and values alive? How do you keep the momentum of morale alive when you can't see people as much? Because I couldn't go into the stores as much in the heat of the pandemic, nor could my teammates. We didn't want to do anything to put anybody in harm's way.

And so, from the first day, you know, where it really, really hit—March 8th, it really, really hit—that's been a big thing, how to keep people motivated. But, you know what we learned? We learned they're already motivated. That we were motivated from our stores. That we have more of a store operational culture now. And that they're the ones bringing ideas to us. Ideas like how to—customers who have Autism have trouble, sometimes, shopping in our grocery stores. Have hours for them when they can shop. Seniors' hours for shopping during the pandemic. Those came from the stores; those didn't come from me. I, you know,I've got a great team of 127,000 teammates. They do it all. And so. That was one of the learnings, they're going to take care of their customers, even when we're not seeing them as much.

Larysa Harapyn
Thank you. The final question, Michael, to you, comes from Carter: customers prior to COVID typically shopped at multiple stores to fulfill their weekly grocery needs. Obviously, since the pandemic, they've tried to minimize the number of stores that they frequent, obviously, for safety reasons. What are you going to do to maintain this level of loyalty post-COVID?

Michael Medline
Well, thanks, Carter, you asked a good question. It sounds like, if you want a job at Empire, you sound like you're thinking the right way. So, it's exactly the kind of questions we ask ourselves. So, in, in, people were shopping mostly five different places for their food a month, prior to COVID. Covid hits, almost everyone shops one, just one. Now, it's a little more than one, if you looked at it today. So, suddenly—and we grew our market share the most because, I think, for people, believe correctly that we are a very safe place to shop. How do we keep those customers? Well, now we, we have customers we haven't seen before. We have customers who are exploring our store, and we, we're able to show them how great Sobeys, Safeway, IGA, Farm Boy, Foodland, FreshCo—I'm missing some—are, and, and, and keep them. And, and so, our whole goal was to show them how safe we are, but also thrill them with our private labels, thrill them with our, our teammates in the stores. And we've been able to do that. So, that is a super question, and one that we thought about a lot. Because we suddenly had this opportunity to thrill more customers.

Larysa Harapyn
Michael, thank you. Thank you for your time, thank you for your insight. I heard you say that Empire Sobeys has new initiatives. We're going to be excited to hear about those around the corner. We thank you kindly for spending this time with us. And of course, a big thank you to the audience who has joined us, a thank you to the tech teams on all sides at the Empire Club, at Empire Sobeys. Thank you.

Michael Medline
Thank you, Larysa. And thank you to the Empire Club; what a great organization. And thank you all, thanks to everyone who tuned in today. I appreciate it very much.

Larysa Harapyn
Thank you.

Antoinette Tummillo
Thank you. I am now going to ask Jake Lawrence to give the appreciation remarks.

Note of Appreciation by Jake Lawrence, Co-Group Head, Global Banking and Markets, Scotiabank
Great, thanks Antoinette, and thanks so much to Larysa and Michael for today's discussion. It was interesting. I took a couple of learnings away, and also take a chance to plug Voilà, which has been a great service which my family has been using through the pandemic. I've gotten to know Michael in recent years. He's a terrific leader, a real man of character, and an outstanding retailer in Canada, as we've seen, now, at two companies. The length of my relationship with Michael is not as long-standing as the relationship between Scotia and Empire. Our two companies have a history that dates back almost 100 years, when our firm first financed a bag of potatoes for Frank Sobeys.

So, we're really proud of that history. It continues with Michael today. The transformation that that company's undergone has been an impressive one, through Project Sunshine, and now Project Horizon, and we congratulate them on that. The type of company, and leader Michael, is, has really been on demonstration through this pandemic. High character individual doing the right thing, looking after his employees, looking after his customers. So, at the end of the day, Michael, thanks so much for all you've done for Canadians, for our families. You've been there when we've needed you most, your full team has. And on behalf of my colleagues at Scotiabank, thank you, everyone, for joining us today, and I'll turn it back to Antoinette to close the program.

Concluding Remarks by Antoinette Tummillo
Thank you, Jake. And I just want to add that we have a Nation Builder Award. And I just wanted to mention that that award is going to frontline workers. So, Michael, your team's on our list. You know, I have to tell you, when I went to the grocery stores in March, I would tear up when I would talk to the staff. And I would say, "How are you doing?" And they would say, "Thank you for asking." Like, I would just... my heart... like, I just felt like, "How do you come to work every day and face us, all these different people coming through?" You've got a huge job. You've been doing a great job. Thank you very much. Larysa, you are amazing. So, thank you, the amazing Larysa Harapyn, who did a great job.

Just want to tell you about our upcoming events. We've got the Election Panel tonight, the US Election Panel. Tomorrow—or sorry, Friday, we've got Lisa McLeod, the Honourable Lisa McLeod, Minister of Heritage and Sport, Tourism, Culture Industries, and on November 3rd, we've got the Honourable Catherine McKenna, Minister of Infrastructure and Communities. We've got lots of events coming up in the month of November, so stay tuned. Go on our website, and please register. Thank you for joining us, and this meeting is now adjourned. Thank you.