Loblaw Companies Ltd. has announced an increase in costs due to double-digit price hikes from its suppliers, particularly large global brands. CFO Richard Dufresne explained that the company has experienced noticeable price increases over the past couple of years as a result. Dufresne also mentioned that one of the company’s largest vendors implemented price increases amounting to 50%, or a quarter-billion dollars. While prices for meat, fruit, and vegetables rose in the mid-single-digits, prices for center-of-store items increased in the double-digits. Despite these cost increases, Loblaw reported higher profits in the second quarter.
Loblaw, along with other major grocery retailers in Canada, has faced increased scrutiny regarding soaring food prices. While overall inflation has been moderate, grocery prices have continued to rise. Politicians and the Competition Bureau have called for the grocery industry to be more transparent about their profit drivers. The bureau’s study revealed that the largest grocers have seen an increase in profits from food sales, with the three largest companies reporting around $3.6 billion in profits last year. The study also found that food gross margins increased by one to two percentage points over the past five years.
In its second-quarter earnings report, Loblaw reported a profit of $508 million, a 31.3% increase compared to the same period the previous year. The company highlighted that the net earnings were elevated due to a prior-year charge at President’s Choice Bank. Revenue for the quarter totaled $13.7 billion, a year-on-year increase of $12.8 billion. Loblaw’s food retail same-store sales increased by 6.1%, driven by a shift to discount stores and private-label brands. The company also mentioned that retail gross margin declined slightly due to double-digit supplier cost increases that were not fully passed on to consumers.
Loblaw is actively engaging with suppliers to negotiate cost decreases. The negotiations between grocers and suppliers have gained attention amid high food inflation. Loblaw previously faced a public dispute with Frito-Lay over pricing, but the matter was eventually resolved. Major food brands, including Coca-Cola, PepsiCo, Kraft Heinz, and General Mills, have reported price increases in recent earnings releases.
Despite the challenges, Loblaw remains optimistic about its retail business and expects its earnings to grow faster than sales for the full fiscal year. The company plans to increase investments in store networks and distribution centers, with a net amount of $1.6 billion allocated for capital expenditures.
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