Empire CEO says food prices will rise

Michael Medline tells analysts it’s inevitable that cost increases will be passed on to the customer
(CNW Group/Empire Company Limited)

Though he and his counterparts at Metro and Loblaw have only hinted at it before, Empire Limited Co. CEO Michael Medline said food prices at grocery would increase due in part to Canada's trade war with the U.S.

The parent company of Sobeys grocery store chain "was a little slow on the trigger" to pass the expense of new tariffs on to consumers, but Medline said costs are accumulating and prices would have to rise for it to remain competitive.

On July 1, the Canadian government started to impose retaliatory tariffs on a wide range of U.S. products (yogurt, coffee, maple sugar, cucumbers, salad dressing and other food items) in response to U.S. tariffs on some Canadian steel and aluminum products.

"We're getting letters from suppliers who want to pass on tariff related increases, we're seeing a bit of that starting in the market and it's too early to speculate what the customer reaction is going to be," said Medline.

Adding to the pressure, he said, was increasing minimum wage costs and rising freight charges. "It's clear with what's going on in terms of transportation cost and tariff-related cost that our expectation --although we're not economists--is that there will be some inflation," he said during a conference call with analysts Thursday afternoon to walk through Empire's 2019 first-quarter results.

During their most recent quarterly earnings calls in July, Loblaw and Metro executives said price hikes were likely, though they were still waiting to see how suppliers would respond. Medline shared similar sentiments during the company's fourth-quarter earnings call that same month.

Empire reported first-quarter profit of $95.6 million, up from $54 million a year ago. Sales totalled $6.46 billion, up from $6.27 billion.

Same-store food sales grew 1.8%, the company saw its highest tonnage increase in six years, and customer count and basket size also increased. Medline credited these gains to "strong long weekends," "strong summer-friendly sales," "balancing the flyer with attractive deals" and stocking more family-friendly, large-size products.

"We do not believe we bought those sales, we don't like empty calories" he said, adding that the company was "far more competitive on the long weekends" and did a much better job than in previous years with promotions "without giving the store away."

Medline also said Empire’s FreshCo expansion in Western Canada is on track. Its first FreshCo store outside Ontario will open in Winnipeg next spring. It will launch with new branding that was introduced at four locations in London, Ont. earlier this summer. Customer feedback has been positive enough that the company has decided to refresh a "bulk" of its remaining Ontario stores over the next few years, Medline said.




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