Business
'It's impossible': Grocery CEOs say they are not causing food inflation – Yahoo Canada Finance
The top executives from Canada’s biggest grocery stores say they are not causing or profiting from food inflation, pointing to higher supplier and input costs as key factors driving rising prices.
The CEOs and presidents from Loblaw (L.TO), Empire (EMP-A.TO) and Metro (MRU.TO) testified before the House of Commons agriculture committee on Wednesday as part of an investigation into food inflation.
All three leaders said grocers were not responsible for soaring food prices, noting that this period of high food inflation is a global phenomenon.
“For those who say grocers are profiteering, the math just doesn’t add up,” Loblaw president and executive chairman Galen Weston said, adding that food prices have increased 25 times faster than profit has. He says the company earns $1 in profit in a $25 grocery basket, which means that while the total basket price has increased by $4 since inflation took off 18 months ago, Loblaw’s profit margin has gone up by 15 cents.
“At Loblaw, none of those profits came from higher food margins. Our retail prices have not risen faster than our costs,” Weston said.
“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.”
The cost of groceries has soared in the past year, increasing at rates not seen in more than four decades. Food inflation has persisted, even as the broader Consumer Price Index has decelerated from the peak reached in June last year. Canada’s inflation rate eased to 5.9 per cent in January, but the cost of food purchased from grocery stores increased 11.4 per cent, up from the prior month.
The persistently high prices have led to increased pressure and scrutiny on grocery retailers. In addition to the agriculture committee’s study on food inflation, the Competition Bureau announced last October that it would examine grocery competition in the country and whether it has driven food prices higher.
How much profit is too much profit?Jagmeet Singh, leader of the New Democratic Party
Members of Parliament grilled executives on Wednesday about the increase in profitability at Canada’s biggest grocery chains amid rising prices. They also asked about whether the grocers would commit to a grocery Code of Conduct, something currently in the works that aims to enhance “transparency, predictability and fair dealing” in the food supply chain.
NDP leader Jagmeet Singh, who has accused the grocers of “greedflation”, subbed in for the party’s agriculture critic and directed his questions to Weston.
“We have families that are struggling to buy food for their kids in this country, a G7 country, and they look at you and they see you making record profits. How can you justify that when families are struggling to put food on the table for their kids?” Singh said. “How much profit is too much profit?”
Weston said that “reasonable profitability is an important part of operating a business,” repeatedly referring to Loblaw’s $1 in profit for every $25 of groceries sold.
“We at Empire are not profiting from inflation. It doesn’t matter how many times you say it, write it, or tweet it, it is simply not true,” Michael Medline said, pointing to geopolitical events, rising input costs, extreme weather, soaring energy prices and labour shortages as factors contributing to rising prices.
“The truth is we are at the end of a very long food supply chain that has economic inputs at every step and stage.”
Eric La Flèche also says Metro grappled with an “unprecedented number” of price increases from its suppliers through 2022. He says the company received more than 27,000 price increase requests last year, with the hikes averaging more than 10 per cent.
“This year, we continue to receive a large number of price increase requests from our suppliers,” he said.
“I hope all members of the committee recognize that the entire supply chain is in an unprecedented period of prolonged stress. Focusing on grocers will not solve the problem of food inflation, because we are not causing it and we are not benefiting from it.”
Senior executives from Loblaw and Empire had previously testified before the same committee in December, but at the time MPs questioned why the chief executive officers of Canada’s largest grocers did not appear before the committee. Senior executives told the committee in December that rising supplier costs were to blame for soaring food prices and that retailers are not taking advantage of inflation to boost profit.
On Wednesday, all three executives referred to the absence of executives from U.S. companies that operate and sell groceries in Canada, such as Walmart and Costco.
“We compete against some of the toughest food retailers in the world including Walmart, Amazon and Costco, as well as a lot of other competition. That does not sound like an oligopoly to me,” Medline said.
“This is not a problem with too little competition. The problem is that there is a global product cost inflation.”
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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Regular shoppers at Nova Scotia liquor stores faced significant price hikes Monday on beer, wine and spirits.
Retiree John McCracken was picking up his usual bottle of wine when he spoke to CTV News outside the NSLC store on Joseph Howe Drive in Halifax.
“I bought last week, the same bottle was $2 less,” said McCracken. “We’re talking like $15, $16 bottle of wine. So not high-end wine.”
“If you go into that liquor store right now, people are going to be shocked.”
Workers were replacing pricing signs in all stores on Monday, but officials insist the overall increase only amounts to about 3 per cent.
“It has to do with overall costs to our supplier community. So that could be anything from freight, transportation, commodities costs, things like glass or aluminum, or other commodities like barley — all of those things are seeing an increase in price, and that’s what factoring in to the overall price increase,” said Allison Himmelman, a spokesperson for the Nova Scotia Liquor Corporation (NSLC).
She says the increase is below the cost of inflation.
Last month, the corporation reported a healthy earnings increase of 6.6 per cent.
On April 1, federal excise taxes are set to increase another 6.3 per cent — the biggest increase in 40 years.
“The excise tax is actually just one factor that goes into our overall prices here at the NSLC,” said Himmelman.
“And it’s actually a very small factor because not all suppliers choose to pass on that excise tax to their retail product prices.”
Still, some local bars and restaurants say the hikes will have to be passed on to customers, which will hurt business.
“There’s no doubt, yeah, we can’t absorb it,” said Dimo Georgakakos, owner of the iconic Gus’ Pub & Grill in Halifax’s north end.
“We’ve been absorbing so many things, and in the bar business we’re a stoic bunch, and we just sort of put our heads down and keep doing it. And now, they just sort of do that and we’ve got to pass it on and it’s going to make customers come here less,” said Georgakakos, son of the bar’s founder.
He and others are still recovering from lost business in the pandemic, and worry many customers have gotten used to staying home.
“In general, things are not going to get back to the way they were,” said Georgakakos. “It’s going to be different.”
NSLC notes that increased revenue from price adjustments is also shared with producers, including Nova Scotia wineries, brewers and distillers.
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Decision made nearly two weeks after former chairman Ammar Al Khudairy said the kingdom’s biggest bank by assets would not buy more shares in Credit Suisse on regulatory grounds.
Saudi National Bank, the largest shareholder in Credit Suisse before the bank’s rescue this month, named a new chairman after the lender suffered significant losses on its investment.
CEO Saeed Mohammed Al Ghamdi will take over as the new chairman from Ammar Al Khudairy, who resigned for personal reasons, the bank said on Monday. Deputy CEO Talal Ahmed Al Khereiji takes over as acting chief executive, a bourse statement said.
All changes are effective on Monday and come nearly two weeks after Al Khudairy said the kingdom’s biggest bank by assets would not buy more shares in the Swiss financial institution on regulatory grounds.
The remarks were seen as a trigger to a further sell-off in Credit Suisse’s shares and intensified a crisis of confidence in the lender that had already seen clients pull out more than $110bn in the last three months of 2022.
Combined with global jitters in the banking sector and an already weakened share price, Al Khudairy’s comments contributed to Credit Suisse losing a fifth of its value, which eventually forced it into a takeover by its domestic rival UBS for $3.2bn.
Saudi National Bank, which acquired almost 9.9 percent of Credit Suisse for 5.5 billion riyals ($1.46bn) in November, has itself lost more than $26bn in market value since October 27 after committing to the investment.
By last week, it was sitting on a loss of more than $1bn but said on March 20 that the drop in its investment’s value had no impact on its growth plans and would not affect profitability.
Al Khudairy also said this month that the bank was not looking at any international acquisitions now and instead was focused on its Saudi business.
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Equities
Canada’s main stock index opened up on Monday with energy and financial stocks adding upward pressure. On Wall Street, key indexes also started higher after a deal to acquire a big chunk of Silicon Valley Bank helped ease concerns about the health of the sector.
At 9:30 a.m. ET, the Toronto Stock Exchange’s S&P/TSX composite index was up 58.63 points, or 0.3 per cent, at 19,560.12.
In the U.S., the Dow Jones Industrial Average rose 39.19 points, or 0.12 per cent, at the open to 32,276.72. The S&P 500 opened higher by 11.94 points, or 0.30 per cent, at 3,982.93, while the Nasdaq Composite gained 44.58 points, or 0.38 per cent, to 11,868.54 at the opening bell.
Overnight, First Citizens said it would buy Silicon Valley Bank’s deposits and loans along with certain other assets from the U.S. Federal Deposit Insurance Corporation.
The FDIC said in separate statement it has received equity appreciation rights in First Citizens stock with a potential value of up to U.S. $500-million as part of the deal, Reuters reported. First Citizens said the transaction was structured to preserve its solid financial position and the combined company will have a diverse loan portfolio and deposit base.
SVB’s collapse, the biggest since the 2008 financial crisis, earlier this month sent shockwaves through the global banking sector, triggering huge market volatility and an heightened focus on the health of institutions around the world.
In Canada, Finance Minister Chrystia Freeland delivers the federal government’s next budget on Tuesday afternoon. Investors will be looking for inflation relief among efforts to address the rising cost of living for Canadians.
“Climate policy, and more specifically, Canada’s response to the massive U.S. Inflation Reduction Act, will headline the budget,” Alvin Tan, Asia FX strategist with RBC, said.
“Some targeted relief to help more vulnerable groups cope with higher living costs is also expected, but plans to return the budget to balance remain at best aspirational.”
Later in the week, investors will get a look at the health of the Canadian economy at the start of the year when Statistics Canada releases its report on January GDP on Friday. Early estimates suggest GDP grew 0.3 per cent for the month.
Canadian companies reporting results include Dollarama on Wednesday and BlackBerry on Thursday.
The latest deadline to close Rogers Communications’ $20-billion deal to buy Shaw Communications expires at the end of the week. The companies are awaiting federal approval for the acquisition.
Overseas, the pan-European STOXX 600 was up 1.21 per cent by midday. Britain’s FTSE 100 advanced 0.95 per cent. Germany’s DAX and France’s CAC 40 were up 1.29 per cent and 1.06 per cent, respectively.
In Asia, Japan’s Nikkei finished 0.33-per-cent higher. Hong Kong’s Hang Seng fell 1.75 per cent.
Commodities
Crude prices advanced as developments in the banking sector helped ease jitters in broader markets.
The day range on Brent was US$74.80 to US$75.96 in the early premarket period. The range on West Texas Intermediate was US$69.13 to US$70.24.
Brent added about 2.8 per cent last week while WTI rose more than 3 per cent.
Sentiment drew some support from new that First Citizens would buy a big chunk of failed Silicon Valley Bank, helping ease concerns about the state of the global banking sector.
Prices also saw some upward pressure from rising geopolitical tensions in Europe amid Russian President Vladimir Putin’s plans to place tactical nuclear weapons in Belarus.
Reuters reports that the move is one of Russia’s most pronounced nuclear signals yet and a warning to NATO over its military support for Ukraine, which has called for a meeting of the U.N. Security Council in response. NATO slammed Putin for his “dangerous and irresponsible” nuclear rhetoric.
In other commodities, gold prices fell for a second session as the U.S. dollar held relatively steady.
Spot gold was down 0.5 per cent at US$1,967.86 per ounce by early Monday morning. U.S. gold futures slipped 0.8 per cent to US$1,968.90.
Currencies
The Canadian dollar was up modestly while its U.S. counterpart held recent gains against a group of world currencies.
The day range on the loonie was 72.75 US cents to 72.90 US cents early Monday morning.
There were no major Canadian economic releases due Monday.
On world markets, the dollar index, which measures the currency against six rivals, rose 0.06 per cent at 103.05, after advancing 0.5 per cent on Friday as investors sought safer holdings amid concerns about the health of the world’s banking sector.
The euro was up 0.08 per cent to US$1.0771, after falling 0.6 per cent on Friday, according to figures from Reuters.
Britain’s pound was at US$1.2260, up 0.25 per cent, after falling 0.5 per cent on Friday. The Australian dollar rose 0.14 per cent to US$0.6652. The New Zealand dollar was up 0.02 per cent at US$0.6202.
More company news
The Globe’s James Bradshaw reports Onex Corp. is offering to shorten a sunset clause that would keep founder Gerry Schwartz in control of the company to three years in a bid to win support from shareholders over the founder’s plan to step down as CEO. Mr. Schwartz, 80, is chairman and chief executive officer and also controls the $50-billion private equity and asset management company through multiple voting shares. He plans to step aside this spring, with president Bobby Le Blanc taking over as CEO.
Australia’s Origin Energy Ltd on Monday agreed a A$15.35 billion (US$10.21-billion) takeover offer from a consortium led by Canada’s Brookfield, nearing the conclusion of one of the biggest private equity-backed buyouts in the country announced last year. Once the deal is finalized, Origin will be broken up into two businesses – Energy Markets business to be acquired by Brookfield; while MidOcean Energy, the other consortium partner, would take control of Origin’s integrated gas business. –Reuters
Toronto-based Li-Cycle Holdings Corp said on Monday it will build a French facility to break down batteries from forklift manufacturer The Kion Group, marking the latest expansion by the rapidly growing recycling company. The French facility, which is expected to open in 2024 and complement similar sites under development in Germany and Norway, will break down lithium-ion batteries that power Kion’s forklifts and other heavy machinery, giving Li-Cycle a fresh source of batteries to recycle beyond the consumer automobile market. –Reuters
Economic news
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With Reuters and The Canadian Press
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