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Skip to main content Subscribefrom $1.99/week Register Log in AdChoices * Canada * World * Business * Investing * Watchlist * Personal Finance * Opinion * Politics * Sports * Life * Arts * Drive * Real Estate * Podcasts LOBLAW EXECUTIVES CALL OUT SUPPLIERS FOR ‘OUTSIZED COST INCREASES,’ AS GROCERS FACE ANGER OVER FOOD INFLATION Susan Krashinsky RobertsonRetailing reporter Published 6 hours agoUpdated 1 hour ago The Loblaw logo is seen in this file image. The retailer said adjusted profit rose 10 per cent in the most recent quarter.DADO RUVIC/Reuters 17 Comments Share Bookmark Please log in to bookmark this story.Log InCreate Free Account Listen to article Log in or create a free account to listen to this article. Executives at Loblaw Cos. Ltd. are calling out multinational consumer packaged goods companies for “outsized cost increases” on products, an accusation that one industry representative said is untrue and an attempt to deflect anger grocers have faced for not doing enough to fight food inflation. Loblaw reported that its adjusted profits grew by 10 per cent in the first quarter, as grocery prices continue to rise and sales of high-margin drugstore items such as beauty products and over-the-counter medicines remain strong. On a call to discuss the company’s quarterly earnings on Wednesday, chief financial officer Richard Dufresne said that so far this year, suppliers have increased Loblaw’s product costs by nearly $1-billion, which is lower than the increases seen in the same period last year but still more than double historic norms. Prior to the pandemic, it was normal for Loblaw to see roughly $400-million in cost increases from suppliers in an entire year; in the 2022 fiscal year, those increases totaled more than $2-billion, he said. “We wanted to call it out because it is one of the big drivers of cost inflation that we are seeing,” Loblaw chairman and president Galen Weston – who faced questions on the subject along with other grocery CEOs before a House of Commons committee in March – said on the call Wednesday. Cost increases seem to be out of line with commodity prices, he said. But Michael Graydon, chief executive of Food, Health and Consumer Products of Canada – which represents manufacturers, including multinational suppliers – said that commodities are not the only factor in price increases, adding that costs for distribution, packaging and labour all continue to rise. “I see this as an attempt to deflect some of the public criticism of these organizations’ profits,” Mr. Graydon said. “The grocery industry has been the bad guy, in regards to inflation discussions. … I’m not sure that it’s fair that they take all of the responsibility from a public perspective. But I think this is just an attempt to deflect the messaging to camouflage very good performance.” Large suppliers have reported an increase in prices. Last week, for example, both Coca-Cola Co. and PepsiCo – a company that has clashed with Loblaw in the past over price hikes – reported revenue and earnings that beat analysts’ expectations, partly driven by higher prices. “We are definitely seeing more inflationary cost pressure from the large multinational CPGs than we would have expected at this time, based on what’s happening in the commodity cost environment,” Mr. Weston said. Canada’s largest grocer, like others in the industry, has seen profits grow as sales have gone up – driven partly by food inflation, which has begun to moderate but is still outpacing the general rate of inflation. Loblaw reported on Wednesday that its internal food inflation measure was “generally in line” with the consumer price index for food purchased from stores, which Statistics Canada uses to measure food inflation and which averaged 10.5 per cent over the quarter ended March 25. On the call, Mr. Weston said that Loblaw has not been passing on all its cost increases in the form of higher prices. The Brampton, Ont.-based grocer reported that while overall profits are going up, its profit margins on food sales have been decreasing slightly as costs remain high – and that growth in its total profit margins is due to strong sales in “front store” categories such as makeup and cold medicines at its Shoppers Drug Mart chain. The company does not provide separate gross margin numbers for its grocery and drugstore retail businesses. In March, the leaders of Canada’s biggest grocery retailers told the House of Commons committee that grocers are not profiteering amid inflation. “Retail prices have not risen faster than our costs,” Mr. Weston said during his appearance. On Wednesday, the company reported that costs in its food retail business are still increasing faster than prices. Grocers have said that for months, they have faced unprecedented levels of cost-increase requests from suppliers. Suppliers have also pushed back on the notion that they are benefiting from inflation. “I know it’s an inconvenient truth, but we have not been profiteering in any way, shape or form,” Unilever plc chief executive Alan Jope said on a conference call last week to discuss the packaged-goods giant’s earnings, adding that the company had only passed on three-quarters of its cost increases to its customers. The Loblaw executives pointed the finger at large suppliers at a time when the industry is working on the final stages of a code of conduct to govern the relations between retailers and product vendors. That code is intended to make negotiations more predictable and to create guidelines for the sector. Loblaw’s net earnings available to common shareholders decreased in the quarter because they compared with a period in the prior year when the company recorded a one-time contribution of $11-million resulting from a favourable court decision in a tax matter. Loblaw reported net earnings of $418-million, or $1.29 per share, compared with $437-million, or $1.30 per share, in the same quarter in 2022. Excluding that prior-year benefit and adjusting for other items, adjusted net earnings rose by 10 per cent. Loblaw’s revenue grew by 6 per cent to nearly $13-billion in the 12 weeks ended March 25, compared to the same quarter the prior year. Same-store sales – an important metric that tracks sales growth not related to new store openings – grew by 3.1 per cent at the company’s grocery stores and 7.4 per cent at its drugstores. The company will soon undergo a leadership transition, as Mr. Weston plans to step back from day-to-day operations by early next year. European retail executive Per Bank will take over as president and CEO of the grocery retailer; however, Mr. Weston will remain chair of Loblaw’s board and chair and CEO of parent company George Weston Ltd. In that role he will remain closely involved in overseeing the strategic direction at the family-controlled company. In his dual role at Loblaw and George Weston, Mr. Weston received a $1.2-million raise in 2022 after consultants hired by the company determined he was underpaid. That brought Mr. Weston’s total compensation to $11.79-million last year. Loblaw has also benefitted from a shift to discount stores as Canadians look for a break on their grocery bills. Discount banners such as No Frills, Maxi and Real Canadian Superstore make up roughly 60 per cent of the company’s store network. Grocers have also seen a boost from growing sales of house-brand products, which come with higher profit margins; sales of private-label items are growing at double the rate of name brands, Mr. Dufresne said on Wednesday, with the company’s No Name brand selling particularly well. E-commerce sales fell by 1.1 per cent, compared to a period in the prior year when COVID-related lockdowns boosted online orders. SIGN UP FOR THE TOP BUSINESS HEADLINES: EVENING EDITION NEWSLETTER An informative summary of the day’s top business headlines, features and columns. Register to sign up Top financials at a glance Study and track financial data on any traded entity: click to open the full quote page. Data as of 03/05/23 2:45pm EDT Loblaw CO L-T-3.12% PE22.38 YieldN/A AnalystsBuy Follow Susan Krashinsky Robertson on Twitter: @susinskyOpens in a new window Report an error Editorial code of conduct COMMENT Read or post comments (17) Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe. If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter . Log inSubscribe to commentWhy do I need to subscribe? Discussion loading ... Read the most recent letters to the editor. RELATED ARTICLES Loblaw reports higher quarterly sales on strong demand for groceries, drugs opinion With Galen Weston leaving as Loblaw CEO, what was his million-dollar pay raise for? Loblaw hires European retail executive Per Bank as company’s next CEO TRENDING world Russia’s Vladimir Putin wages a different kind of war against pro-democracy leaders world Russia accuses Ukraine of trying to kill Putin with drone attack on Kremlin politics CSIS responsible for decision not to inform government or MP about China’s targeting of him, Trudeau says cost of living Aeroplan partners with Bell to offer more perks to travellers music The 7 most memorable Gordon Lightfoot songs, according to Globe staffers The Globe and Mail YOUR GLOBE Build your personal news feed More info FOLLOW THE AUTHOR OF THIS ARTICLE: * Susan Krashinsky Robertson Follow You must be logged in to follow.Log InCreate free account FOLLOW TOPICS RELATED TO THIS ARTICLE: * Earnings Follow You must be logged in to follow.Log InCreate free account * Food costs Follow You must be logged in to follow.Log InCreate free account * Loblaw Companies Limited Follow You must be logged in to follow.Log InCreate free account Check Following for new articles Now’s the time to invest in yourself and your finances Enjoy unlimited digital access and member exclusive benefits $7.99 per week $1.99 per week for first 52 weeks Subscribe now Cancel anytime Now’s the time to invest in yourself and your finances $7.99 per week $1.99 per week for 52 weeks ABCDEFGHIJKLMNOPQRSTUVWXYZabcdefghijklmnopqrstuvwxyz0123456789-_~ x