Loblaw’s decision to freeze prices on all No Name items until January labelled a ‘PR strategy’

Canada’s biggest grocery chain is freezing prices on all its No Name products for the next three months.

Loblaw Companies Ltd. — which operates such grocery stores as Loblaws, Zehrs, No Frills and Real Canadian Superstore — says it has locked in prices of the popular house brand, which includes more than 1,500 grocery items, until Jan. 31, 2023.

In a letter shared with some of its customers on Monday, Loblaw chairman and president Galen G. Weston says the price of an average basket of groceries is up about 10 per cent this year, with such items as apples, soup and chips up even more.

Weston said much of this is “maddeningly” out of the company’s control as food suppliers pass on higher costs to Loblaw.

The chain has pushed back against some increases where it can, he said, but suppliers are contending with the same cost increases faced by consumers — with higher prices for everything from raw materials to energy and transportation.

“None of these explanations offer much comfort when you’re worried about your family’s budget and uncertain about how much you’ll need each month to pay for food,” Weston said in a letter to members of the company’s loyalty program, PC Optimum.

Last year, a fight over higher prices briefly saw the company suspend the sale of Frito-Lay products at its stores, before the two sides came to an agreement.

Grocery chains have come under fire for being seen to be making excessive profits at a time when consumers are stretched thin due to rising inflation.

A few years ago, grocery chains including Loblaw, Sobeys, Metro and others took a reputational hit with shoppers when they were found by Canada’s competition watchdog to have been colluding to fix the price of bread and other baked goods for years.

Federal NDP Leader Jagmeet Singh has made grocery store profits a rallying call, noting that the major Canadian chains have taken in $2.3 billion in profit so far this year.

Profits at grocery chains are way up

Loblaw’s profits have indeed risen of late, with the company revealing net earnings of $387 million in its most recently completed quarter. That’s up by $12 million from this time last year and by $121 million from the same period in 2019, before the COVID-19 pandemic.

At rival Metro Inc. — which owns Metro, Food Basics and other brands — net earnings came in at $275 million in the most recent quarter, up from $252 million a year ago and $222 million in the same period in 2019.

It’s a similar trend at Empire Co. — the owner of Sobeys, IGA, Safeway, Farm Boy, Foodland, FreshCo and other grocery brands — posted net earnings of $187 million in its most recently completed quarter. That was down slightly from $188 million in the same period a year earlier but up from $120 million in the same period pre-pandemic.

While Loblaws is spinning the move as a change to help consumers, it’s common for grocers to try to maintain stable prices during the busy holiday shopping season.

“It is an industry practice to have a price freeze from Nov. 1 to Feb. 5 for all private label and national brand grocery products,” a spokesperson for the Metro chain told CBC News on Monday. “And this will be the case again this year in all of Metro banners.

“There may be a few price increases received prior to Oct. 31 that will appear on the shelf, but no price increases thereafter.”

Many skeptics

Jim Stanford, an economist and director of the research institute Centre for Future Work, said while many Canadian corporations have tried to paint themselves as the victims of inflation, their financial results show that they are in fact contributing to it.

“Corporate profits have soared right alongside consumer prices, and it isn’t a coincidence,” he told CBC News in an interview on Monday. “The evidence is clear that corporations are doing much more than passing on higher costs.”

As a percentage of Canada’s entire GDP, he noted that corporate profits hit an all-time high of almost 20 per cent in the second quarter of this year. While other sectors — notably the energy sector — have seen profits increase at a faster rate, Stanford said, grocers are clearly coming out ahead.

“We should see this as a PR gesture from a company that knows it’s in the eye right now,” he said of Loblaw’s decision to freeze No Name prices.

Others say it’s unfair to suggest that grocery chains in particular have been gouging consumers. Trevor Tombe, an economist at the University of Calgary, recently crunched the numbers on corporate profits and said he didn’t find much evidence of undue profiteering in that sector specifically.

“The profit levels are up because of volumes, not because of price markup increases,” he said in an interview.

“The higher profits that we’re seeing are largely driven by high commodity prices and high energy, oil and gas prices in particular. So that’s causing both inflation to increase and profits to increase.”

Marion Chan, a principal with TrendSpotter consultancy, says the move makes sense for Loblaw as it’s an opportunity to gain customers on items for which pricing tends to matter more than branding.

Inflation-weary consumers are “very willing to make the trade-offs and go to a No Name product or a or a private label product as it may be to save some money,” she said in an interview. “There’s a wide range of reasons why people are brand loyal but [they] hit a cap at a certain point where they say, no,  I just can’t spend.”

  Similar moves in other countries

The decision by Loblaw to freeze prices of the private label brand with its distinctive yellow-and-black packaging follows similar announcements by grocers in other countries.

In August, French supermarket chain Carrefour announced plans to freeze prices on about 100 of its house-brand products until Nov. 30.

In June, Lidl’s U.S. arm introduced a summer price-cutting campaign to ease the inflationary burden on customers. The company said it dropped prices on more than 100 items in its stores across nine East Coast states until August.

“We’ve seen grocers voluntarily freezing prices across the G7 for a while now,” said Sylvain Charlebois, professor of food distribution and food policy at Dalhousie University in Halifax. “It should have happened a long time ago in Canada.”

Still, freezing No Name prices will offer much-needed relief to Canadians, he said, adding it will also help to repair some of the image issues facing Canada’s big grocers, Charlebois said.

“This is also a PR strategy…. A lot of Canadians are blaming grocers for what’s going on with food inflation,” he said. “Some of it is deserved … but much of that criticism is unfair because food prices can rise for a variety of reasons beyond a grocer’s control.”

Mike von Massow, an associate professor in the food, agricultural and resource economics department at the University of Guelph, said it’s no accident that Loblaw has decided to cap price hikes on the brand that it owns, because it has the power to control all parts of the supply chain.

“They control the brand, they can control much more of the margin of that product — and they may well have locked in the prices and mitigated a good bit of their risk going forward,” he said in an interview. “Are they going to lose substantial amounts of money on this, on this commitment? Probably not.”

While the company’s move has a lot to do with public relations, von Massow said, it is likely going to help people who need it most, because it’s targeting staple items where there are very few ways of avoiding price increases. “There is a real chance that costs will continue to go up over the coming months, and this gives people some certainty now,” he said.