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Loblaw could offset higher costs from minimum wage hikes in Ont., Alta. with 0.4% price increase: CIBC report

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Loblaw Companies could cancel out projected cost increases stemming from minimum wage hikes in Ontario and Alberta with an uptick in prices, according to a research note by CIBC analysts.

The grocery and drug store operator said Wednesday it expects its labour expenses to rise by $190 million in 2018 due to minimum wage increases in the two provinces.

But according to CIBC World Markets, the company could offset those costs with a price increase of roughly 0.4 per cent.

READ MORE: ‘Our hand is sort of being forced’: Alberta businesses face changes due to Saturday’s minimum wage hike

Loblaw also said health care reform in Quebec is expected to have a more significant incremental impact in 2018 than in prior years.

The company made the comments as it reported a second-quarter profit attributable to shareholders of $358 million or 89 cents per diluted share. That compared with a profit of $158 million or 39 cents per diluted share a year ago.

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The Ontario government said July 21 it is moving forward with legislation that would raise the province’s minimum wage from $11.40 an hour to $14 per hour on January 1, 2018, and $15 per hour on January 1, 2019.

In Alberta, the minimum wage is set to rise from $12.20 per hour to $13.60 an hour on Oct. 1, followed by an increase to $15 an hour on Oct. 1 of 2018.

Loblaw’s revenue for the quarter ended June 17 amounted to nearly $11.08 billion, up from $10.73 billion in the same quarter last year.

Three options for Loblaw as labour costs rise

Loblaw said it is currently assessing how to “mitigate” the impact of higher wages and generic drug price reductions in Quebec. The company likely has three options to do so, according to Sylvain Charlebois, dean of the faculty of management at Dalhousie University.

The first is slightly raising prices across the board, as outlined by CIBC. Customers likely wouldn’t notice a 0.4 per cent increase, Charlebois told Global News. Still, with fierce competition from the likes of Walmart and Costco, Loblaw will likely be loath to tweak its prices, he added.

Option two is trimming its labour force the old-fashioned way. The company could easily do so without resorting to layoffs, by simply hiring fewer temporary workers, Charlebois noted.

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The third option is speeding up the adoption of technology like robotics and artificial intelligence, or, in other words substituting men with machines. That could mean more self-checkout points and more robots handling inventory, among other things, said Charlebois.

“You’re seeing that trend already, I suspect that the new regulations coming up in both Ontario and Alberta could expedite that process,” he said. “This is something we all expect in [the] food distribution [business].”

READ MORE: Reality check: Is a $15 minimum wage bad for the economy?

In addition to its grocery business, Loblaw owns the Shoppers Drug Mart chain, as well as the Joe Fresh clothing business, PC Financial personal banking and a stake in the Choice Properties real estate investment trust.

– With files from the Canadian Press