Misunderstanding Still Surrounds Grocery Profits

According to Finance Minister Chrystia Freeland, more competition is needed in Canada’s grocery sector as consumers grapple with higher food prices, after two of the country’s largest grocers reported higher sales and profits in the most recent quarter. 

Speaking at a press conference in Mascouche, Que., Freeland said major changes need to be made to Canadian competition law to help stabilize food prices. 

Food sales are up at two of Canada’s largest grocery chains, Loblaw Cos. Ltd. and Metro Inc. told investors following their fourth-quarter earnings releases on Nov. 15.

In its fiscal fourth quarter, Metro recorded an increase in food sales of 6.8 per cent. Net earnings amounted to $222 million, bringing net earnings for the year up to $1.02 billion. Loblaw recorded sales increases too. Food sales were up 4.5 per cent, bringing net earnings for the year to $1.07 billion.

The gains were hard won, said Eric la Flèche, president and chief executive of Metro , in a Nov. 15 press release. “We are pleased with our fourth quarter results, which were achieved in a challenging operating environment that included a five-week strike at 27 Metro stores in Ontario,” he said.  “For the first time in our history, sales for the year exceeded $20 billion and net earnings reached $1 billion.”

Loblaw also touted its results. “Our stores are delivering more value, including deeper discounts on essentials, and customers are responding positively,” said Galen Weston, chairman of Loblaw , in a Nov. 15 press release. “We remain focused on doing what we can to fight inflation and deliver lower prices for Canadians, while continuing to invest for the future.”

Loblaw and Metro have undergone significant structural changes in recent months. For one, Weston has stepped out of the role of chief executive of Loblaw, and into the role of chairman, with Per Bank taking over his role as CEO.

The results come at a time when grocery prices have improved but are still higher than the Canadian consumer is comfortable with.

As Canadians increasingly look to save on food costs, Loblaw and Metro said they’ve been converting stores to discount banners and are seeing higher sales growth in private-label brands. 

While the price of groceries has been one of the more notable aspects of the current inflationary spiral, inflation has since eased under the weight of interest rate increases from the Bank of Canada and the stabilization of the supply chain post-covid.

Already the federal government called upon the major grocers to take steps to stabilize food prices given nearly seven million Canadians struggled with hunger last year. The proportion of families in Canada that reported experiencing food insecurity within the previous 12 months rose 16 per cent between 2021 and 2022.

Earlier this year, the parliamentary agricultural committee speculated as to whether Canada’s five largest retailers, who control 80 per cent of the grocery market, were engaged in “price gouging.”

In March, the chief executives of Loblaw, Metro and Empire Co. Ltd. appeared before the committee and testified under oath that they were not profiteering off of higher grocery prices .

Loblaw is working hard to stabilize food prices for customers, said Richard Dufresne, the company’s CFO, on a Nov. 15 call with investors. It’s suppliers that are the problem, he said.

“As we continue to do our part to fight inflation, we remain concerned about the level of commitment to this cause from some of our suppliers,” Dufresne said. “With lower supplier costs, we can lower prices on the shelf for customers. Unfortunately, several large global suppliers are still coming with higher-than-expected cost increases for next year.”

Industry Minister Francois-Philippe Champagne announced that Loblaw, Metro, Empire, Walmart and Costco had presented their plans, which included discounts and price freezes.

The industry is also nearing the completion of a grocery code of conduct meant to provide guidelines for fair dealings between retailers and suppliers. 

While grocers have been pointing to large cost increases from major food suppliers as a key factor in rising prices, they have also been criticized over some of the fees they charge to suppliers, which say they have their own rising costs to contend with. Scrutiny of these fees in 2020 helped kickstart work on the grocery code. 

Loblaw recently criticized the code, claiming it could add inflationary pressure to grocery prices to the tune of $1 billion in its current form. Members of the steering committee tasked with overseeing the creation of the code disputed Loblaw’s claim and urged the grocer to give the voluntary code a chance. 

While grocery prices have been moderating, posting a 5.8 per cent year-over-year gain in September, well off the 11.4 per cent peak of a year earlier, they do remain well above the Bank of Canada’s target range .

Resolving inflation is not a one-person job, Weston added. “It’s important to reiterate that grocers are not the reason for higher food prices. So we are unable to resolve inflationary pressures on our own,” he said.

On the conference call, La Fleche said Metro, too, is still receiving price increase requests from big suppliers, which it will “negotiate as much as possible.” He said the grocer’s food basket inflation measurement during the quarter was around 5.5 per cent, lower than food inflation across the country and lower than its third quarter.