Canada’s largest grocer says its product costs have risen by nearly $1 billion so far this year — double the historic norm — as it continues to to see “outsized” price increases from big multinational food brands.
Loblaw Companies Ltd. said Wednesday the cost hikes appear out of sync with the commodity cost environment, and are contributing to elevated food inflation in Canada.
While small- and medium-sized Canadian food suppliers appear to be “catching up on costs,” the price increases passed on by large food companies are “more concerning,” said Loblaw chief financial officer Richard Dufresne.
“We are still seeing outsized cost increases rolling in from large, global consumer goods companies, exceeding what we expected at this point,” he said during a call with analysts.
His comments came as Loblaw reported a profit of $418 million in its first quarter, down from $437 million last year when the company saw a one-time gain from a court ruling. Revenue for the 12-week period totalled nearly $13 billion, up from nearly $12.3 billion a year earlier.
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The grocer made the decision to highlight the ongoing oversized price increases from large food brands as it’s “one of the big drivers of cost inflation that we are seeing,” Loblaw chairman and president Galen G. Weston said.
“We did not pass the full amount of cost inflation to customers, leading to food gross margin declines yet again this quarter,” Loblaw chairman and president Galen G. Weston said during the analyst call.
“We are definitely seeing more inflationary cost pressure from the large multinational (consumer packaged goods companies) than we would have expected at this time based what’s happening in the commodity cost environment.”
He noted that sales of Loblaw’s in-house brands, President’s Choice and No Name, grew at more than twice the pace of the big national brands in the quarter.
Food retail same-stores sales were up 3.1 per cent, while drug retail same-store sales increased by 7.4 per cent.
Dufresne said food retail took a hit in the year-over-year comparisons because of an uptick in business tied to the Omicron variant COVID lockdowns in the same quarter in 2022.
Growth in customers dining in at home during lockdowns helped fuel food sales during that quarter, according to the company, though that business has waned somewhat as customers have returned to restaurants post-lockdown.
Yet Weston, who will step down as president at the end of the year while continuing to head up the grocer’s parent company, signalled during the call Wednesday that consumers facing stretched budgets are again favouring the company over restaurants in some respects.
He flagged that fresh and ready made meals are seeing growth at Loblaw as some customers who don’t want to cook at home “trade down” from dining out.
Weston was asked by an analyst whether he expects the grocer will continue to see business rise if an economic slowdown sees consumers further rein in spending at restaurants, and he said it was hard to say for sure, though historic trends would suggest it’s possible.
“I don’t know precisely what’s going on at this moment in time, but it’s a reasonable hypothesis,” he said.
Loblaw raised its dividend 10 per cent as it reported its first quarter earnings, saying it will now pay a quarterly dividend of 44.6 cents per share, up from 40.5 cents per share.
The increase for shareholders came as Loblaw reported its profit amounted to $1.29 per diluted share for the quarter ended March 25, down from $1.30 per diluted share in the same quarter last year.
On adjusted basis, Loblaw said it earned $1.55 per diluted share in its latest quarter, up from an adjusted profit of $1.36 per diluted share a year ago.
Analysts on average had expected an adjusted profit of $1.55 per share and $13.2 billion in revenue, according to estimates compiled by financial markets data firm Refinitiv.
— with files from Global News’ Craig Lord
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