Cut prices by one per cent, Sobeys tells suppliers

Just months after taking over Canada Safeway in Western Canada, Sobeys is demanding its suppliers take one per cent off all of their prices.

In a letter sent to suppliers before the new year, Canada’s second largest grocery chain said it also wouldn’t take any price increases from suppliers, except some pharmaceuticals, during 2014.

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The letter came from Dale MacDonald, Sobeys’ senior vice-president of category management and national procurement. A copy was obtained by the Globe and Mail, which reported the story this morning.

“To support growing sales and to improve our internal productivity, we expect to fully leverage our new consolidated scale,” MacDonald wrote.

The price cut is retroactive to Nov. 3.

Analysts expected that upon hearing of Sobeys’ demands, other retailers would follow suit and also demand suppliers shave their prices.

With retail food inflation stubbornly low over the past year, food retailers and manufacturers have found it difficult to grow sales and increase margins.

READ: Food price increases will be low in 2014, says report

Food prices at retail grew just 1.2 per cent last year, according to estimates from the University of Guelph. Prices could rise as little as 0.3% this year, according to the university’s annual Food Price Index report.

Among the reasons for low food inflation is the hotly competitive grocery environment where too many stores are chasing too few customers.

“The landscape in Canada has become very, very competitive,” Dr. Sylvain Charlebois, lead author of the report, told Canadian Grocer last month.