‘It is simply not true’ — Grocery CEOs push back at price-gouging allegations
Galen Weston #GalenWeston
The heads of Canada’s biggest grocery chains pushed back at allegations they are profiteering from high inflation on Wednesday, telling lawmakers that they aren’t the cause of high food prices — and claiming their profit margins are as razor thin as ever.
“We are not profiting from inflation, it doesn’t matter how many times you say it … it is simply not true,” said Michael Medline, the CEO of Empire Foods, which owns Sobeys, FreshCo, Farm Boy, Foodland and other chains.
Medline was speaking to the Standing Committee on Agriculture and Agri-Food, which is probing the causes of food inflation, which has skyrocketed to its highest level in decades.
Prices for food purchased at grocery stores increased by 11.4 per cent in the year up to January, according to Statistics Canada. That’s almost twice the overall inflation rate of 5.9 per cent in that same period.
Medline was summoned to speak, along with his compatriots at rival Loblaws, led by Galen Weston, and Eric La Flèche, president and CEO of Metro, which owns Food Basics and other chains.
Together, those three grocery chains make up the majority of Canada’s grocery industry, with thousands of stores across the country. Profits at all three firms are up sharply in the pandemic, but all three say their profit margins on food are razor-thin.
As overall inflation flattens, grocery prices continue to climb
“It is folly to suggest that an unprofitable grocery business is somehow better for customers,” Medline said. “Like all Canadians, we look forward to seeing the end of this tough inflationary period.”
Weston echoed that sentiment, insisting that higher profits at Loblaws are mostly due to higher sales in non-food items, such as discretionary spending at Shoppers Drug Mart, its Joe Fresh clothing line and its financial services arm.
“As unexpected as it may sound, grocery chains operate with extremely small profit margins, which means we have minimal influence on inflation,” Weston said, adding that the profit margin on the company’s grocery arm is about four per cent. “That means even if the industry had zero profits, a $25 grocery bill would still cost $24,” Weston said, “so the claim that Canadian grocers can correct food price inflation is simply wrong.”
Weston cited his company’s highly publicized price freeze on thousands of No Name items during the holiday period. Critics have dismissed it as a publicity stunt, but Weston said that price freeze saved Canadians $45 million at the cash register for the three months it was in operation. He also said the company pushed back against price increases by refusing to accept $500 million in “unjustified cost increases” from suppliers.
He singled out items such as milk, butter, some cheeses and vegetable oil as products that the chain sells at a level that makes them unprofitable, in order to get customers into the store. “As a matter of interest, we lose money on every breast of chicken that we sell,” Weston told reporters in a scrum outside the committee hall after he had finished testifying.
“So no matter how many times you read it on Twitter, the idea that grocers are causing food inflation is not only false, it’s impossible,” he said. “Our retail prices have not risen faster than our costs,” he said.
La Flèche went further still, arguing that his company’s profit margin on its food business is lower today than before.
“Our food profit margin has actually decreased, though it’s been offset by a higher pharmacy product margin,” he told the committee in French.
“Focusing on grocers will not solve the problem of food inflation because we are not causing it and we’re not benefiting from it.”
Weston was the target of a number of testy exchanges with NDP Leader Jagmeet Singh, who has been drawing attention to the profits in Canada’s grocery sector for months.
Singh cited a recent academic research paper that tabulated, based on its recent financial results, Loblaws took in a profit of about $1 million per day above what it saw before the pandemic. “How much profit is too much profit?” Singh asked Weston, repeatedly.
“Reasonable profitability is an important part of operating a successful business,” Weston replied. He added that the company reinvests those profits into opening new stores and hiring more employees. “It doesn’t go to me. It goes back into this country.”
Stuart Smyth, a professor of agri-food innovation at the University of Saskatchewan, says that consumers are noticing high food prices at grocery stores because they shop so frequently, unlike other products.
“There is a little bit of price inflation going on, certainly within the retail sector, but I’m not convinced that is the real driver of higher food prices,” he told CBC News in an interview.
He said calls for a tax on excess profits in the grocery sector are misguided, since it is employees and investors who will pay that price. “We face the challenge of higher food prices but do we want our investments to be investing in companies that are not trying to be profit maximizing?”