Grocery CEOs grilled by MPs on food inflation

OTTAWA –

Executives at Canada’s major grocery chains argue that food price inflation has not been driven by profit growth and that their food-related profit margins have remained low.

Loblaw Cos. Ltd., Metro Inc. and Empire Co. Ltd., which operates the Sobeys, Safeway and FreshCo chains, appeared Wednesday before a parliamentary committee investigating inflated grocery prices.

Their testimony came amid calls from federal politicians, including Finance Minister Chrystia Freeland and NDP Leader Jagmeet Singh, for the industry to be more transparent about what drives its record high profits.

It is “false” to suggest that food is responsible for high food prices, all three leaders told MPs, saying food inflation is a global problem.

“It doesn’t matter how many times you say it, write it or tweet it. That’s just not true,” said Michael Medline, president and CEO of Empire.

“The truth is that we are at the end of a very long food supply chain that has an economic contribution at every step and stage.”

In January, food prices rose 11.4 percent year-on-year, almost double the overall inflation rate of 5.9 percent.

At the same time, there was a big increase in corporate profits, and major grocers outperformed. All three companies posted higher profits in the first half of 2022 compared to their average performance over the past five years, according to a report released last fall by Dalhousie University’s Agri-Food Analytics Laboratory.

Loblaw’s gross profit in the first half of 2022 beat its previous best by $180 million, the equivalent of about an extra million dollars a day, the study found.

Galen Weston, the billionaire chairman and chairman of Loblaw, said the company made more profit from financial services and apparel and drugstore sales, which he said represent more than half of its business.

He said the company’s profit is about $1 for every $25 spent on groceries, and grocery prices have risen about 25 times faster than grocery profit margins.

“The idea that there is an inflation of grocery products is not only a lie, but also impossible,” he said.

After the meeting, Weston told reporters that he recognized that the issue of food inflation was “a very difficult challenge.”

“I hope our opportunity to speak and answer questions today has been helpful, not only in satisfying the committee, but also through media exposure to help restore public confidence,” he said.

When asked why he thinks he and Loblaw have become the faces of the problem, he said: “I don’t know.”

The NDP had pushed for the meeting to hold the CEOs accountable for what they called “greed,” and Singh advertised his clash with Weston in social media posts. The party has even set up a page on its website that allows supporters to RSVP to watch it unfold.

Singh, deferring to the party’s agriculture critic, directed his questions to Weston, who was sitting just a few meters away.

“They look at you and see you’re making record profits. How can you justify that when families are struggling to put food on the table for their children?’ he pleaded.

“We feel and understand that 95 per cent of Canadians are concerned about food prices. But grocery chain profits are not the cause of food inflation,” Weston replied.

“How much profit is too much?” Singh asked several times.

Weston suggested. “Reasonable profitability is an important part of running a successful business.” He added that the company is reinvesting those profits to open new stores and hire more employees. “It doesn’t go to me, it goes back to this country.”

Medline teased earlier. “It’s nonsense to think that an unprofitable grocery business is somehow better for customers and better for shelf prices.”

The chief executives were asked whether they would commit to providing detailed financial reports to the Competition Bureau, which is investigating whether a lack of competitiveness in the grocery industry may be contributing to higher prices.

They all said they did, and supported the new grocery code of conduct.

“I think overall we got answers,” Liberal MP Lee Taylor-Roy said after the meeting, adding that CEOs clearly stand up for their positions and stakeholders, and “there’s always a bit of a parade”.

He said there was still a lot of work to be done by the Competition Bureau, which is expected to submit a report and recommendations to the federal government in June.

Earlier Wednesday, Freeland told a news conference that CEOs “have an absolute responsibility to be transparent with all of us” about why prices are so high.

“And I hope they tell us that the prices will start to come down,” he said.

Medline said that so far in 2023, the volume of cost increase requests from providers is similar to last year. But there is a “slight indication” that such surveys will slow down in April.

He was quick to assert that he was not going to “throw our supplier partners under the bus”.

“They’re also doing their best in extraordinary times, they’re being hit hard by rising costs, which unfortunately they’re having to pass on to retailers,” he said.

During the hearing, both Medline and Eric LaFleche, Metro’s president and CEO, questioned why lawmakers appeared to be excluding from their study large American companies that operate in Canada.

The panel unanimously approved a motion by Liberal MP Ryan Turnbull to invite Horacio Barbeito, president and CEO of Walmart Canada, and Pierre Riel, head of Costco Wholesale Canada.

“They’re important players in our food system, and they’re retailing and selling it to the Canadian public. And we want to look at the whole picture,” Turnbull said after the hearing.

This report by The Canadian Press was first published on March 8, 2023.