Grocery CEOs defend ‘reasonable profitability’ in grilling over soaring food costs

Click to play video: '‘How much profit is too much profit?’: Singh grills Loblaw executive on food inflation'
‘How much profit is too much profit?’: Singh grills Loblaw executive on food inflation
WATCH: 'How much profit is too much profit?': Singh grills Loblaw executive on food inflation – Mar 8, 2023

Editor’s note: A previous version of this story incorrectly identified Galen G. Weston as CEO of Loblaw. He is the company’s president, as well as CEO and president of Loblaw’s parent company, George Weston Limited.

The heads of Canada’s top three grocers insisted on Wednesday that they are not profiting off soaring food inflation and are doing everything they can to keep prices low for Canadians, pinning the blame on suppliers and the global market.

But many MPs on the House of Commons agriculture committee were not buying what the CEOs were selling, repeatedly asking the executives to square rising profits with grocery costs that are forcing families to make hard choices at the checkout aisle.

“How much profit is too much profit?” asked NDP Leader Jagmeet Singh, who has made food inflation and alleged “greedflation” by grocers a top issue for his party.

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“Is there no limit to how much profit you can make on the backs of Canadians that are struggling because they can’t afford their groceries?”

“Reasonable profitability is an important part of operating a successful business,” said Galen G. Weston, CEO of Loblaw parent company George Weston Ltd., who stated several times during his testimony that his company makes $1 in profit for every $25 sold.

Click to play video: 'Parliamentary committee grills grocery store chain CEOs about greed'
Parliamentary committee grills grocery store chain CEOs about greed

Singh, who’s not a regular member of the committee, advertised his showdown with Weston in a slate of social-media posts ahead of the meeting.

Weston appeared alongside Metro Inc. CEO Eric La Fleche and Michael Medline, CEO of Empire Co., which operates chains including Sobeys, Safeway and FreshCo.

All three companies and their executives have been increasingly under scrutiny for the prices of the food on their shelves.

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While headline inflation has shown signs of cooling in recent months, prices for food purchased from the grocery store were again up 11.4 per cent in January, according to Statistics Canada.

An analysis from Dalhousie University’s Agri-Food Analytics Lab published in November found all three top grocers beat their five-year averages for profit in the first half of 2022, with Loblaw beating its previous best results for the period by $180 million.


Click to play video: 'Grocery store CEOs have ‘responsibility’ to work at lowering food prices amid inflation: Freeland'
Grocery store CEOs have ‘responsibility’ to work at lowering food prices amid inflation: Freeland

Asked about the Dalhousie report, Weston said he disagreed with its findings. All three CEOs said their profit margins haven’t changed and that more money is made from pharmacy and other non-food sales.

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The executives also questioned why MPs have not invited large American retailers who do business in Canada to testify, arguing they make up a significant portion of the market. The committee later unanimously agreed to summon the heads of Walmart Canada and Costco Canada.

Some Conservative members focused their questioning on the impact they say Liberal government policies like the carbon tax have on the rising costs of farmers and other suppliers from whom the grocers source their products.

The CEOs refused to entertain suggestions that government policies were contributing to food inflation.

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“Clearly their costs are up. What the exact root causes of those are, I’ll leave to others. I’ll leave to experts,” La Fleche said.

Click to play video: 'Singh chides MPs for laughing during question about grocery prices'
Singh chides MPs for laughing during question about grocery prices

Weston said many of the cost increases from vendors are “unjustified” and claimed Loblaw had stopped $500 million worth of such price hikes over the course of the current inflationary period.

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The executives did say they would support a grocery code of conduct that is being developed by the federal government that’s aimed at providing more transparency in food procurement and grocery supply chains. The said more retailers within their corporations are signing on to support the initiative, which does not yet have a timetable for being introduced.

While all three companies publish financial disclosures every quarter, those public documents do not break down how much they pay for goods or include detailed price increase information to back up the CEOs’ claims.

The executives said they would or have already submitted more detailed financial information to the Competition Bureau, which announced in October it is undertaking a study that will specifically look at whether competition in the grocery sector is playing a role in the higher prices.

But they pushed back at questions on whether they would share detailed information on supplier cost increases with the committee, calling the information “sensitive.”

Click to play video: '‘Greedflation’ at the grocery store explained'
‘Greedflation’ at the grocery store explained

Earlier Wednesday, Finance Minister Chrystia Freeland said grocery executives have a “responsibility” to Canadians to work towards lowering food prices in their stores as inflation continues to soar and to be transparent about what’s contributing to the increases.

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“The fact is, prices are too high in Canada right now,” Freeland told reporters during an event in Mississauga, Ont.

“Grocery CEOs have a responsibility to their customers, and they have a responsibility to all Canadians to work really, really hard with all of us to get inflation down and to get prices down.

“They absolutely do have a responsibility to all of us to be transparent about why those prices are so high, and I hope they’re going to tell us that the prices are going to start coming down.”

Digging into grocers’ financials

High prices at the grocery store are just one set of pressures pushing Canadian household finances to their limits.

Data from Statistics Canada released on Tuesday showed that just 29 per cent of Canadians felt they lived in a household where they could easily make ends meet by the end of last year — down from nearly half (48 per cent) in mid-2021.

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Simon Somogyi, the Arrell Chair in the Business of Food at the University of Guelph, tells Global News that while grocers’ overall profit margins as of late have floated between four and six per cent, it’s not clear how much of that comes from the sale of food as opposed to other high-margin goods such as cosmetics, over-the-counter drugs or clothing.

As Canadians meanwhile face soaring prices on meat, pasta, milk and other staples, grocers should be transparent about how much money they make on these sales, Somogyi argues.

“That information isn’t readily available,” Somogyi says. “As those are the things that most consumers buy, I think it’s fair that we have some understanding of exactly how much profit there is.”

Many food categories say prices accelerate from December.

Loblaw executives argued during an earnings call last month that inflation had hurt, not helped, the grocer’s profit margins.

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The company, which is Canada’s largest grocer, acknowledged in a recent social media campaign that it had become the “face of food inflation,” but stopped short of taking the blame for soaring prices. The chief financial officer said recently that the company is “not taking advantage” of food inflation to drive profit.

David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives, said the grocers may indeed be making their profits off of non-food products. But “we have no way to evaluate that because we can’t see any of that segmented information,” he told the Canadian Press.

And even if profits are being driven by lipstick or soap sales, Macdonald said that shouldn’t necessarily insulate the companies from scrutiny.

Corporate profits shot up significantly in 2021 and 2022, coinciding with the global rise in inflation and fuelling accusations of “greedflation.” That across-the-board trend deserves more attention, Macdonald said, which Somogyi agrees with.

“We see all these costs across the food supply chain going up, but we have very little understanding of exactly how that impacts the dollar that you spend in the grocery store,” Somogyi told Global News.

What will finally bring grocery prices down?

Before Wednesday’s committee meeting, Somogyi said there were a few concrete measures he wanted to see emerge, including an updated timeline on the grocery code of conduct.

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The best outcome, he said, would be measures to improve competition in Canada’s grocery sector, making the industry more welcoming for disruptive competitors such as Europe-based Aldi or Lidl.

A recent Senate of Canada report probing the long-term causes of inflation identified the need to increase competition in numerous sectors as a possible route to limit price pressures in the future.

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Walmart Canada head says ‘perfect storm’ led to rising prices, pushes back against profit claims

A final report from the Competition Bureau’s study is expected in June, complete with recommendations for the federal government.

Until then, the outlook for food prices isn’t good, Somogyi notes.

The 2023 price report from Somogyi and his peers projected another five-to-seven per cent hike in food inflation this year, with hopes of easing by the summer and fall months.

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“It’s going to be a rocky road,” Somogyi says.

— with files from The Canadian Press

Click to play video: 'Food inflation: Rising prices make eating healthy a struggle for low-income Canadians'
Food inflation: Rising prices make eating healthy a struggle for low-income Canadians

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