Grocery store CEOs defend ‘reasonable profitability’ in grills amid soaring food prices – National

The chefs of Canada’s three major grocers insisted on Wednesday they were not taking advantage of soaring food inflation and were doing all they could to keep prices low for Canadians, blaming the suppliers and the global market.

But many MPs on the House of Commons agriculture committee weren’t buying what CEOs were selling, repeatedly asking leaders to balance rising profits with grocery costs that are forcing families to make difficult choices at checkout.

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

“Is there no limit to the profits you can make off the backs of Canadians who are struggling because they can’t afford groceries?

“Reasonable profitability is an important part of running a successful business,” said Loblaw Companies CEO Galen Weston Jr., who repeatedly testified during his testimony that his company makes a profit of $1 for every $25 sold.

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House committee questions grocery chain CEOs on greed

Singh, who is not a regular committee member, announced his confrontation with Weston in a list 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 such as Sobeys, Safeway and FreshCo.

The three companies and their executives have come under increasing scrutiny for the prices of food on their shelves.

While headline inflation has shown signs of slowing in recent months, prices for food purchased at grocery stores rose again by 11.4% in January, according to Statistics Canada.

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

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Asked about the Dalhousie report, Weston said he disagreed with its findings. All three CEOs said their profit margins had not changed and more money was coming from pharmacy and other non-food sales.

Leaders also questioned why MPs did not invite major US retailers who do business in Canada to testify, arguing that they represent a large share of the market. The committee then unanimously agreed to call in the leaders of Walmart Canada and Costco Canada.

Some Conservative MPs focused their questions on the impact they think Liberal government policies like the carbon tax have on rising costs for farmers and other suppliers grocers source from.

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

“It is clear that their costs are rising. What are the exact root causes of these I will leave to others. I’ll leave it to the experts,” La Flèche said.

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Weston said many of the supplier cost increases are “unwarranted” and claimed Loblaw stopped $500 million of such price increases during the current inflationary period.

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The leaders said they would support a code of conduct for grocery stores being developed by the federal government that aims to bring more transparency to the food supply and grocery store supply chains. Said more retailers within their companies are signing up to support the initiative, which does not yet have a timeline for its introduction.

Although the three companies release financial information quarterly, these public documents do not detail the price they pay for the goods or include detailed price increase information to support the CEOs’ claims.

The executives said they would submit or have already submitted more detailed financial information to the Competition Bureau, which announced in October that it was undertaking a study aimed specifically at determining whether competition in the grocery sector plays a role in raising prices.

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

Click to play the video: ''Greed' at the grocery store explained''

“Greed” at the grocery store explained

Earlier Wednesday, Finance Minister Chrystia Freeland said grocery store executives have a “responsibility” to Canadians to work to lower food prices in their stores as inflation continues to soar and to be transparent about what contributes to increases.

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

“Grocery CEOs have a responsibility to their customers, and they have a responsibility to all Canadians to work very, very hard with all of us to reduce inflation and lower prices.

“They absolutely have a responsibility to all of us to be transparent about why these prices are so high, and hopefully they’ll tell us that the prices are going to start coming down.”

Digging into grocers’ finances

High grocery prices are just one set of pressures pushing Canadian household finances to the limit.

Statistics Canada data released on Tuesday showed that only 29% of Canadians believed they lived in a household where they could easily make ends meet at the end of last year, up from almost half (48%) in mid-2021. .

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Simon Somogyi, Arrell Professor of Food Commerce at the University of Guelph, told Global News that while overall grocer profit margins have hovered between four and six percent recently, it’s unclear part of that comes from sales. of food products as opposed to other high-margin products such as cosmetics, over-the-counter drugs or clothing.

As Canadians grapple with soaring prices for meat, pasta, milk and other staples, grocers should be transparent about the revenue they earn from those sales, Somogyi argues.

“This information is not readily available,” says Somogyi. “Since these are the things that most consumers buy, I think it’s fair that we have some understanding of exactly how much profit.”

Many food categories claim prices are accelerating 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 did not take blame for the surge in prices. price. The CFO recently said the company is “not taking advantage” of food inflation to generate profits.

David Macdonald, senior economist at the Canadian Center for Policy Alternatives, said grocers could indeed make their profits from non-food items. But “we have no way to assess that because we can’t see any of that segmented information,” he told The Canadian Press.

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

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Corporate profits have increased significantly in 2021 and 2022, coinciding with rising global inflation and fueling accusations of “greed”. This general trend deserves more attention, Macdonald said, something Somogyi agrees with.

“We’re all seeing these costs going up in the food supply chain, but we have very little understanding of exactly how that affects the dollar you spend on groceries,” Somogyi told Global News.

What will finally bring down food prices?

Ahead of Wednesday’s committee meeting, Somogyi said he wants to see a few concrete steps emerge, including an updated grocery store code of conduct timeline.

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

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

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

Until then, the outlook for food prices is not good, notes Somogyi.

The 2023 price report from Somogyi and peers predicted a further 5-7% rise in food inflation this year, with hopes of a slowdown by the summer and fall months. .

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

— with files from The Canadian Press

Click to play the video: “Food inflation: Rising prices make healthy eating a challenge for low-income Canadians”

Food inflation: Rising prices make healthy eating a struggle for low-income Canadians

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