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Loblaw says it’s receiving “concerning” number of cost increase requests from large CPGs

Suppliers have increased the company’s product costs by nearly $1 billion in the year to date, the company’s CFO told analysts
Jillian Morgan, female, digital editor for Canadian Grocer
loblaw head office

Loblaw Companies Ltd. called out large, multinational consumer goods companies on its first quarter earnings call Wednesday (May 3) for “outsized” cost increase requests. 

Chief financial officer Richard Dufresne told analysts that, in the year to date, suppliers have increased the company’s product costs by nearly $1 billion – down from north of $2 billion last year but more than double Loblaw’s annual historic norm of $400 million.

That figure includes small- and medium-sized Canadian vendors “catching up on costs,” he said.

“More concerning, we're still seeing outsized cost increases rolling in from large global consumer goods companies exceeding what we would be expecting at this point.”

Galen G. Weston, chairman and president, said the company wanted to call out the increases as “one of the big drivers of cost inflation.”

“We are definitely seeing more inflationary cost pressure from the large, multinational CPGs than we would have expected at this time based on what's happening in the commodity cost environment.”

READ: Confusion over drivers of food inflation creating consumer distrust of grocers

Loblaw’s net earnings came to $418 million for the quarter, a decrease of $19 million or 4.3%.

The grocer’s revenue was $12.99 billion in Q1, up 6% from the prior year quarter. Retail segment sales were $12.74 billion, up 5.7%

Food retail same-stores sales increased by 3.1%. Drug retail (Shoppers Drug Mart) same-store sales increased by 7.4%, with front store same-store sales growth of 10.3% and pharmacy same-store sales growth of 4.7%.

E-commerce sales decreased by 1.1%.

READ: Loblaw to invest $2B this year to open 38 new stores, renovate 600 locations

Weston said the growth of its private label business shows no signs of slowing down, particularly thanks to its No Name brand. 

“We invested a lot in the quality of No Name formulations over the last four or five years and so what's happening here as customers are buying the product, they're realizing that they're not making a quality trade down and they're saving a great deal of money,” he said. “We're optimistic that even as the inflation moderates, and perhaps consumers get a bit less price sensitive, a lot of that penetration will remain.”

As more consumers opt to shop at Loblaw’s discount banners, like No Frills or Maxi, Weston told analysts it’s too early to say how that shift will impact its conventional stores. 

“I was looking at some data this morning that showed a drop in the cross shop rate, for example, in P1 this year and an increase in the performance of the discount business. That would suggest that customers are increasingly dedicated to a single format shop, which would be worrying for our conventional channel, but in the subsequent periods we saw that normalize again and we saw that cross shop rate continue to grow,” he explained. “There will be a normalization. The broader context though, and I've said this also before, is that in the decade prior to COVID, we have seen virtually all of the growth coming from the discount channel, largely because that's where all of the competitors, ourselves included, were adding new stores.”

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