Lobla Finance Companies Ltd. it appears to be taking efforts to defend its brand against accusations of profiteering from higher prices, but experts say the communications moves may be “too little, too late,” now more than a year into growing customer frustration with high grocery costs.
In an earnings announcement on Wednesday, the company noted that the increase in profit of over 30 percent was due to “last year’s tariff hike. He also pointed out that retail gross margins decreased slightly in both food and medicine as Loblaanair was affected by double-digit supplier cost increases that “were not fully passed on to consumers.”
“The food profit suggestions just don’t add up,” said Loblaflix CFO Richard Dufresne on a Wednesday earnings call with analysts.
Dufresne said the increases in supplier costs followed similar increases from last year. He said the cost increases have come from” all levels ” of the company’s supplier base, but more so among the largest global brands.
WHAT DO THE EXPERTS SAY?
The company’s statements came more than a year into an inflationary cycle that has raised food costs for Canadians. Inflation is starting to slow overall, but has remained high for food items.
David Soberman, professor of marketing at the University of Toronto, said that Loblaanair is trying to “minimize the negative impact” of public discourse on higher food prices.
“They are (Loblaanair) of course, I would say trying to put lipstick on a pig,” Soberman, the Canadian national chair in strategic marketing at the Rotman School of Management, said in an interview with BNNBloomber.ca Wednesday.
“I think Canadians are pretty upset about the profits that major supermarket chains have recently recorded in Canada, given the high rates of inflation. The fact that their profits have grown faster than inflation, I think, is quite worrying.”
The food economist of the University of Guelph Michael von Massoflix said in an interview with BNNBloomberg.ca Loblaflix has done a poor job in communicating about the increased costs it has experienced over the past year.
“The strategy to go out and try and get ahead of it as they’re announcing these things, and speaking more clearly about the reasons for some of these profit numbers, was a smart thing to do, and maybe it might be too little too late,” he said Thursday, adding that statements from the company seem credible.
While Loblaanair pushes directly on food profit stories, von Massoanair said the business is being affected by macro conditions. He said there are many reasons behind the rise in prices, “and if foodies have played any role, it has been a very small role.”
“I think the factors that are influencing the inflation of food prices still exist,” von Massoflix said.
According to von Massoflix, people are looking for easy answers after rising prices in grocery stores.
“It’s frankly easy to blame the person or organization that we’re paying as we go through the box office, and so it’s not surprising that Canadians have felt that way,” he said.
Despite the fact that Loblaflix highlighted the double-digit increase in supplier costs, Soberman said the company is not being transparent about the exact nature of the increases.
“They are also not giving us very detailed information … where’s the percentages? What are the current increases? Why don’t you give us this information by category and tell us what you’re actually doing?”he said.
In a statement about BNNBloomberg.ca on Friday, Catherine Thomas, a spokeswoman for Loblaanair, said the business would continue to “fight against inflation” while providing customers with the value, selection, care and freshness they expect.
“The idea that grocery store profits are driving inflation has been proven incorrect. We are working to keep the prices our customers pay as low as possible, while not passing on record increases in costs from our suppliers,” she said.
“As evidence of this fact, our food margins are down again this quarter – meaning that costs from our suppliers are rising faster than our prices.”
GLOBAL BRANDS
Soberman said rising energy and raw material costs have led to higher prices for global brands that act as suppliers.
“Global brands themselves have had to deal with wheat prices that have risen faster than inflation and energy prices that have risen faster than inflation. So with this as a backdrop, it’s no surprise that they’ve increased their prices,” he said.
However, Soberman said that Loblaanair is trying to redirect negative sentiment.
“It’s trying to deflect, ‘don’t be angry with Lobla Prior, be angry with Heinz, be angry with Procter and Gamble, be angry with Lever Brothers, that’s kind of the message, ‘” he said.
PROFIT MESSAGES
Soberman said it’s interesting to see Lobla! move the conversation toward its own profits and show that profits haven’t grown as much as some might believe.
Amid higher costs for food, Soberman said there is a “perverse positioning here” in that lower-performing supermarkets have a “stronger marketing story to show how they are fighting inflation for their consumers.”
He said the worst-performing supermarkets could be insulated from criticism by pointing to higher-earning competitors.
“It actually puts the firm that does the worst in a good position in terms of the message it can send,” he said. “People will be more angry and more upset with the supermarket chain that has had profits grow more in this inflationary environment.”
PUBLIC OPINION AND WHAT’S NEXT
Amid higher costs for food, public sentiment toward shoppers has been unfavorable among a sizable group of Canadians.
In April, survey results from Dalhousie University’s Agri-Food Analytics Laboratory found that one in three Canadians believed the main reason behind higher food costs was price gouging by Canadian nutritionists.
If inflation remains high, Soberman said he believes “public protest” will continue.
“There seems to be some evidence that there is (a) slowdown in inflation. And I think that means you’re probably going to see a slowdown in the rate at which supermarket profits are growing,” Soberman said.
As a result, he said he anticipates that the public’s negative sentiment towards buyers will “soften or become less strong over time.”
In June, the Competition Bureau released a study on Canada’s food sector, saying there is a need for more competition in order to keep food prices down and give consumers more choice.
The study said focus on the industry has increased in recent years and that food companies have increased margins on food sales.
Despite the findings, von Massoflix said the Competitiveness Bureau report “completely ignored” the fact that larger companies benefit from economies of scale and economies of scale.
“If we split these large companies, or if we introduce more competition, that doesn’t necessarily mean that the benefits of more competition will outweigh the costs of economies of scale,” he said.
With files from the Canadian Press
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