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Loblaw, Metro warn food inflation could persist as suppliers continue to hike prices

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A Metro grocery store is seen Tuesday, January 31, 2012 in Montreal. THE CANADIAN PRESS/Paul Chiasson

Two of Canada’s grocers say food suppliers are continuing to pass along new cost increases, signalling higher food prices will persist into 2023.

Loblaw Cos. Ltd. and Metro Inc. say they've received fresh rounds of cost increase notices from food suppliers in recent weeks. 

"The inflation outlook remains uncertain as we continue to receive many vendor requests for price increases," Metro president and CEO Eric La Flèche told analysts on Wednesday. 

Loblaw chief financial officer Richard Dufresne said the company has seen "unprecedented cost increases from our suppliers this year and we continue to receive new cost increases."

The comments came as both grocery and drugstore operators posted higher sales and profits in their latest quarterly results.

Canadian grocers have come under fire in recent months for recording strong profits as record-high food inflation forces many households to change their grocery shopping lists or seek help from a food bank. 

Canada's competition watchdog has launched a study examining whether high concentration in the grocery sector is contributing to rising food costs.

Loblaw chairman and president Galen G. Weston said the company is "actively participating" in the Competition Bureau's study. 

"Our objective is to make sure that we share in a transparent way all the most relevant information to make sure that the facts of what's happening in this inflationary environment are properly understood," he said. 

"We clearly feel strongly about what's going on and the actions that we're taking to help mitigate food price inflation."

A recent study found Canada's top three grocers all posted higher profits this year compared with their average performances over the last five years.

But a Dalhousie University report said there was not sufficient data to determine whether grocers were taking advantage of high food inflation, since their financial results group food prices together with goods like pharmacy items or cookware. 

Both Loblaw and Metro said their food gross margins — a measure of profit on grocery sales — have held steady or even edged down. 

Loblaw's food gross margins have been "essentially flat" every quarter since inflation took off last summer, Dufresne said.

"This gives us the confidence to say categorically that retail prices are not growing faster than costs and the company is not taking advantage of inflation to drive profit," he said. 

Metro chief financial officer François Thibault said the company's food gross margins were down slightly over the year while its pharmacy division posted stronger margins.

The Montreal-based company reported its fourth-quarter profit fell compared with a year ago as it took a $60-million charge related to the company's decision to have its Jean Coutu drugstore chain withdraw from the Air Miles loyalty program next year.

On an adjusted basis, however, Metro's net earnings were $219.4 million, up 9.4 per cent from $200.6 million in the same quarter last year. 

Sales totalled $4.43 billion, up from $4.09 billion in the same quarter of 2021. 

Loblaw reported its third-quarter profits rose about 30 per cent compared with a year ago.

The company said its net earnings available to common shareholders totalled $556 million for the quarter ended Oct. 8, up from $431 million in the same quarter last year. 

Revenue climbed to $17.39 billion in the quarter, up from $16.05 billion in its third quarter of 2021.

This report by The Canadian Press was first published Nov. 16, 2022.

Companies in this story: (TSX:MRU)

Brett Bundale, The Canadian Press