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Grocery Business Magazine

June 8, 2016

Dollarama maintains grocery push
New CEO Neil Rossy starts tenure amidst strong results. Reaffirms growth strategy, keeps milk option open.

Dollarama remains open to the possibility of offering milk in stores. However Neil Rossy its new president and CEO, admitted that this was unlikely to happen anytime soon. The comments, made following the Dollarama’s annual general meeting, came just after Larry Rossy, its chairman (and Neil’s father) had stated his coolness regarding purchases of expensive refrigeration equipment.

The nuances in the father-son team’s approach, provided the first signal of new directions that the generational power shift, which took place at the start of last month, could generate.

Canada’s grocers who are seeing their market shares increasingly chipped away at by the dollar store discounter have a huge stake in the developments. Neil Rossy’s comments come on the heels of a year when Dollarama far outperformed traditional grocers, in same stores sales and the number of stores opened.

Dollarama stays hungry
Dollarama’s grocery strategy is nuanced. Consumables, which include food items, cleaning and personal care products, of the kind found in grocery stores, accounted for just under a third of its $2.65 billion in sales during fiscal 2016. Furthermore, according to Neil Rossy, the company has no interest in increasing its penetration of grocers’ territory, where margins are significantly lower than those offered by Dollarama’s core products.

As proof of Dollarama’s neutral approach toward grocers, Rossy cites the fact that it only sells grocery products that retail for less than $2.00, while it will introduce $3.50 and $4.00 price points on other items later this year. However the strategy, which masks significant Dollarama penetration on Grocers’ turf, shows no signs of ending, as the company plans to open between 60 and 70 new stores during fiscal 2017.

The criteria for opening new stores haven’t changed company officials say. These include expected capital outlays of $400,000 for each new store, potential annual sales of about $2.5 million per outlet and a two-year payback period to recover the initial investment.

Million dollar pay raises
The Dollarama annual general meeting featured smiles all around. These however weren’t solely based on the company’s results. Executives did well too. According to Dollarama’s management proxy circular released this morning, Neil Rossy saw his salary and options-based compensation shoot up by 74% to $2.6 million last year.

Michael Ross, the company’s chief financial officer, registered a 63% increase to $2.7 million. Joannne Choiniére, chief operating officer and Geoffrey Robillard, who heads the import division, took home $2.3 million and $3.0 million respectively. The increases reflect the strong rises in Dollarama’s share price which has brought the company’s market capitalization above the $11 billion mark.

One thing that won’t change as a result of the company’s success and its increasingly importance to the Canadian economy is the Rossy family’s public profile. “My father always liked to stay in the background and focus on work,” said Neil Rossy with a smile. “So do I. In fact I am even more shy than he is.”

Highlights

First quarter ended January 31, 2016 (compared to the First Quarter of Fiscal 2016).

•   Sales increased by 13.2% to $641.0 million;
•   Comparable store sales(2) grew 6.6%, over and above a 6.9% growth the previous year;
•   Gross margin(3) was 37.0% of sales, compared to 36.0% of sales;
•   EBITDA(1) grew 26.4% to $133.9 million, or 20.9% of sales, compared to 18.7% of sales;
•   Operating income grew 27.0% to $120.4 million, or 18.8% of sales, compared to 16.7% of sales; and
•   Diluted net earnings per common share increased by 36.0%, from $0.50 to $0.68.

Peter (at) peterdiekmeyer (dot) com

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peter@peterdiekmeyer.com

Peter Diekmeyer Communications Inc.