Gap between discount, conventional narrowing at Loblaw as food inflation rises: Weston

Though consumers have been turning to conventional, full-shop grocery banners since the onset of COVID-19, Loblaw president and chairman Galen G. Weston says rising inflation could swing the pendulum back in favour of discount.

The gap between the company’s discount and conventional banners has been slowly narrowing in recent months as restrictions have eased, but economic uncertainties could help bridge that remaining gap, said Weston during a call with analysts Wednesday morning to discuss Loblaw’s third-quarter results.

“Our discount business welcomed many of its loyal value-seeking customers back through its doors, a trend which we expect to continue as inflation is increasingly showing up in many aspects of our lives,” he said.

Statistics Canada said Wednesday the annual pace of inflation in October rose to 4.7% as the consumer price index posted its largest year-over-year gain since February 2003. The increase followed a 4.4% year-over-year increase in September.

“We are paying a lot of attention to cost inflation,'' said Loblaw chief financial officer Richard Dufresne. “The number and size of cost increases requested by vendors has been elevated since the summer.”

“Our team uses a thorough process to vet pricing requests,” he said. “We work hard to negotiate those increases down so that we offer our customers the best value.” 

The prices of meat and produce, the latter of which the company has been sourcing locally and from the U.S., have recently stabilized, said Dufresne, while “grocery remains the area with the most activity.”

Supply chain disruptions, meanwhile, are putting pressure on the availability of what Weston called "peripheral SKUs." Weston said manufacturers are consolidating production and focusing on their highest volume products and putting secondary sizes and flavours on allocation. 

“What customers will be frustrated to see is something's in stock for a week and then it's out of stock for four or five weeks, then it comes in stock again and then it goes out,” said Weston, adding that this disruption could last over the next few quarters.

“That's really the consequence of this allocation approach that has been undertaken by many of the vendors ... We need to work hard to make sure that we're getting our share of the allocation, and we think that we are, ” he said.

Other areas of the business impacted by supply chain issues are general merchandise, apparel and food items imported from offshore, said Weston, but all in all, the company is well positioned as it heads into the Christmas season. “We feel the stores are in terrific shape and ready for the fourth-quarter surge.”