Grocery giant Loblaw demands suppliers cut prices to lower grocery bills

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Grocery giant Loblaw tells suppliers to slash their prices
WATCH: In an effort to help Canadians feed their families, Canada's largest grocery retailer, Loblaw, is demanding its suppliers cut their prices. But will that keep more money in your pocket? Reid Fiest reports. – Jul 28, 2016

Grocery and drug store giant Loblaw has told suppliers it wants them to drop their prices by September. But how much customers will save remains to be seen.

Over the last two years, the company says it has seen costs increase by $1 billion — an amount that is also hitting Canadian shoppers in their pocketbooks.

Monthly food price increases have come down somewhat recently. Food costs increased only 1.3 per cent in June, according to Statistics Canada, having fallen from the month before.

The stronger loonie and lower fuel costs are factors, but changes in the Canadian grocery store market may also play a part.

Loblaw — the parent company of the Superstore Loblaws and Independent grocery chains — is demanding its suppliers cut their prices by 1.45 per cent within one month.

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Any relief would be welcome for shoppers like Jeff Hutchings.

“Because feeding a family of four, it’s getting expensive,” Hutchings told Global News. “If they can help, that would be great.”

READ MORE: Why a rising loonie could mean a shrinking grocery bill

David Allwright, the dean of Bow Valley College’s Chiu School of Business, said asking suppliers to drop prices makes good business sense for Loblaw given its buying power

“If you’re purchasing goods from a supplier, you negotiate the toughest deal you can negotiate,” he told Global News. “And if you’re in a position [where] you can drive a hard bargain, that’s what you do.”

Walmart, for example, is no stranger to naming its price with suppliers, and other retailers have followed with marketing plans telling customers they have new low prices.

“I think five years ago, if you asked the average Canadian who the top five grocery retailers are in the country, Walmart wouldn’t have been on the list,” Allwright said. “Now it is.”

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But the actions of Loblaw and Walmart don’t help smaller businesses like Halifax’s Local Source Market. Owner Sean Gallagher told Global News he can’t drop prices since he’s selling local products, so he’s forced to pay a fixed cost.

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“We’re by no means making a mint,” Gallagher said. “We have to stay super competitive because we’re being squeezed in the price wars going on in the market place.”

He said consumers are “very sensitive” to which stores’ prices are lower, but he hopes consumers will continue to buy his products because of their quality.

Consumers like Nicole Schmid say they’re not willing to sacrifice quality for price.

She said she shops around for a deal, but knows she’ll get what she pays for.

“I find Walmart less (expensive), but the quality of produce and meat is less,” Schmid said. “I would prefer to spend a little bit more, to have, you know, good quality.”

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