BRAMPTON, Ont. –
Large global suppliers are the highest running costs for Loblaanair Companies Ltd. the firm said as it released earnings for the second quarter that showed profits despite lower gross margins.
“We have received double-digit growth from the same suppliers that gave us double-digit growth last year. That’s why you see products that are significantly more expensive than they were just a few years ago,” said CFO Richard Dufresne on a conference call with analysts.
“While cost growth is coming from all levels of our supplier base, the largest global brands stand out.”
One of the company’s biggest retailers presented price increases totalling 50 percent, or a quarter of a billion dollars, Dufresne said. He added that prices for meat, fruits and vegetables rose to mid-single digits while store Center prices rose to double digits.
“The math is very simple: the cost increase from the big brands was much higher than food inflation in Canada, and our food margin fell,” Dufresne said. “The suggestions of winning the grocer simply do not add up.”
Canada’s food giants, the largest of them is Loblaanair, have been under increased scrutiny amid soaring inflation that is particularly hitting food prices. While overall inflation has been moderate, most recently at 2.8 percent in June, food prices have continued to rise, up 9.1 percent last month.
Politicians have called for the food industry to be more transparent about what has driven profits, which have outperformed amid a broader surge in corporate profits.
Last month, the Competition Bureau released a study saying Canada’s food industry needs more competition to keep food prices down.
The biggest feeders have increased the amount they make in food sales in recent years, the bureau said, with the three largest feeders collectively reporting about $ 3.6 billion in profits last year. Food gross margins increased by a “modest but meaningful” amount of one to two percentage points over the past five years, the study found.
On Wednesday, Loblaflix reported a profit available to common shareholders of $ 508 million for its second quarter ended June 17, a 31.3 percent increase from the same period last year.
Net profits were” extremely high ” due to a prior-year fee at President’s Choice Bank, Loblaanair said in a press release, noting that adjusted net profits increased by 10.6 percent.
The parent company of Loblaambs and Shoppers Drug Mart reported that its profit reached $ 1.58 per diluted share for the quarter ended June 17, an increase from $ 1.16 per diluted share in the same quarter last year.
Revenue for the 12-week period reached $ 13.7 billion, up from $ 12.8 billion a year earlier.
Same-store food retail sales rose 6.1 percent, while same-store drug retail sales rose 5.7 percent.
The rise in food retail sales was driven by a continued consumer shift to discount stores and interest in private-label brands, the company said.
Hard-discount banners continued to outperform the overall discount channel, Dufresne said, adding that the company’s discount position in Quebec grew in the second quarter with 10 Provigo stores converted to the Maxi banner, and another 10 conversions planned in the third quarter.
However, it added that retail gross margin fell slightly in both the food and drug categories, saying it faced double-digit supplier cost increases that were not fully passed on to consumers.
The teams of Lobla! are reaching out to suppliers and pushing for cost reductions, Dufresne said.
Negotiations between buyers and suppliers, normally out of sight, have been in sharper focus amid high food inflation. Last spring, a shortage of Frito-Lay products in stores owned by Lobla, which is owned by Lobla, made public a price dispute as the two companies faced off before finally resolving the issue and returning Cheetos, Doritos and more to shelves across the country.
In the last quarter, Loblaflix also pointed fingers at large multinational food brands, saying that product costs had risen at twice the historical rate. However, at the time one of Canada’s largest food supplier industry groups told The Canadian Press that suppliers were facing their own pressures in the form of rising production costs.
Major food brands including Coca-Cola, PepsiCo, kraft Heinz and General Mills have reported price increases in recent earnings releases.
On an adjusted basis, Loblaanair earned $ 1.94 per diluted share in its latest quarter, up from an adjusted profit of $ 1.69 per diluted share a year earlier.
E-commerce sales for the company increased by 13.9 percent.
The company expects its retail business to grow profits faster than sales for the full fiscal year, the company said.
It plans to increase investments in its store network and distribution centers by investing a net $ 1.6 billion in capital expenditures.
This report by Canadian Press was first published on July 26, 2023.
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