Question Period: CEOs Talk Business

By now, most have likely seen the video and read the news about some of Canada’s top grocery executives – Galen Weston, Loblaw Companies Ltd.; Michael Medline, Sobeys Inc.; and Eric R. La Flèche, Metro Inc. – who were asked to attend a parliamentary committee studying inflated grocery prices on March 8 to explain the rising costs of groceries.

During the hearing, Medline and La Flèche questioned why the committee excluded Walmart Canada and Costco Wholesale Canada.

“We ask that you look at the entire industry for solutions,” said Medline. “There are giant American grocery retailers doing business in Canada who were not called to the floor here today. Are they exempt from playing a role in these issues?”

La Flèche added that Metro competes “for customers, talent, and capital with both Canadian companies and U.S. giants, such as Costco, Walmart and Amazon that represent a significant portion of the market. I note that these U.S. companies were not invited to participate in the committee’s work.”

When Liberal MP Ryan Turnbull tabled a motion to invite the top executives of the two big-box stores, it was unanimously approved.

Turnbull agreed with Medline and La Flèche, noting that the big-box stores are “important players in our food system and they retail food and sell it to the Canadian public. And we want to look at the whole picture.”

Indeed, industry experts say the hearing was somewhat slanted.

“There was never a chance for the grocers to emerge unscathed,” says Ken Wong, a distinguished professor of marketing at the S.J. Smith School of Business, Queen’s University.

“The real charge was ‘how dare you make more money while Canadians are suffering?’ The unspoken assumption is that growing profits are a measure of greedflation. What the panel, especially the more left-wing panelists, forgot is that much of the profit growth was sourced in non-grocery operation (e.g., Shoppers Drug Mart), operational efficiencies (e.g., distribution and process changes), enhanced analytics, and new services (e.g., Voilà) – and not price gouging. The consolidated financials of the grocery chains make it hard to unbundle contribution of these elements and thus, in the absence of hard data, a less informed consumer sees price as the only logical source of growth.”

Sylvain Charlebois, a food professor in food distribution and policy, and senior director of the Agri-Food Analytics Lab at Dalhousie University, concurs with Wong.

“Canadians have criticized, even attacked, grocers, blaming them for their misfortunes at the grocery store. As unpopular as it may be right now, that line of reasoning is as linear as it is unsophisticated. Most of the blame is policy-induced, and there’s little grocers can do at this point. Most people have made up their minds. It’s bizarre to see people pointing fingers at either a company or a man. Is Galen Weston responsible for Germany’s 20 per cent food inflation rate? When I see a guy like Jagmeet Singh attacking grocers, I fail to see where he’s coming from.”

Wong adds the committee also ignored that “grocery profits benefit consumers via increased employment and capital investment. Most Canadians would find that their mutual funds and pension funds have investments in grocery stores. In this way, grocery stores are almost ‘cooperative ventures’ providing dividends and capital appreciation instead of rebates on purchases.”

Food market analyst Kevin Grier says people should look to how grocers handled prices during the pandemic to better understand today’s circumstances.

“I never heard anyone thanking the grocers for keeping a lid on prices during the 2020 and 2021 lockdowns, when they easily could have jacked them higher as consumers were flocking to the stores and emptying shelves. U.S. price increases at the same time were much higher than Canadian prices, which were fairly stagnant over the lockdowns. In fact, the U.S. food inflation rate was higher than the Canadian rate on average for 2022 as well. 

“In addition, the inflation rate of manufactured consumer food products has been rising faster than the retail prices of those products during 2021 and 2022. In other words, their costs of consumer goods sold have seen a higher inflation rate than has been passed on to consumers,” says Grier.

The CEOs say . . .

“It doesn’t matter how many times you say it, write it or tweet it. It simply is not true. The truth is we are at the end of a very long food supply chain that has economic inputs at every step and stage…It is folly to suggest that an unprofitable grocery business is somehow better for customers and better for shelf prices…We are not going to throw our supplier partners under the bus. They are also doing their best in extraordinary times. They are greatly impacted by rising costs, which, unfortunately, they are forced to pass on to retailers.”

Michael Medline, president and CEO, Sobeys Inc.

“We feel and understand that 95 per cent of Canadians are concerned about food prices. But grocery chain profits are not the reason for food inflation…If we didn’t raise retail prices as costs went up, the companies that we operate would disappear almost instantly…Grocery chains operate with extremely small profit margins, which means we have minimal influence on inflation. That means even if the industry had zero profits, a $25 grocery bill would still cost $24, so the claim that Canadian grocers can correct food price inflation is simply wrong.”

Galen Weston, chairman and president, Loblaw Companies Ltd.

“The suggestion that we are somehow causing food inflation, using food inflation to inflate our profit margins, are not paying our fair share of taxes, is simply untrue…As confirmed in a recent Statistics Canada report, the pandemic, the war in the Ukraine, adverse weather conditions, and transportation and labour issues are among many factors that have contributed to higher food prices. These factors have led to an unprecedented number of price increases from our suppliers. In 2022, Metro received more than 27,000 price increase requests averaging more than 10 per cent from grocery suppliers alone. That’s nearly three times our annual average.”

Eric La Flèche, president and CEO, Metro Inc.