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More price increase requests from large global brands in Q2, Loblaw execs say

On the company's second quarter earnings call, Loblaw executives said the food retailer continues to receive cost increase requests from suppliers, driving up retail prices
Jillian Morgan, female, digital editor for Canadian Grocer

Loblaw’s top brass have doubled down on their sentiments towards consumer packaged goods (CPG) companies and what the grocer views as unjustified cost increase requests.

On the company’s second quarter earnings call Wednesday (July 26), chief financial officer Richard Dufresne said that, since inflation began, one of Loblaw’s largest vendors submitted price increase requests totalling a quarter of a billion dollars. 

The food retail giant also called out multinational CPGs on its Q1 call in May for "outsized" cost increase requests. 

“We have received double-digit increases from the same suppliers who gave us double-digit increases last year,” Dufresne told analysts. “In Q2, the average price for meat, fruit and vegetables purchased in our stores were up in the mid single-digits. But the average purchase in the centre store, where you find the biggest brands, was up in the double digits.”

The executive said the company is pushing back against price increase requests, noting that the cost of transportation, wheat, flour, paper and plastic have descended from their 2022 highs. 

“With lower costs, we will lower prices,” he said.

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Having its own control brands allows Loblaw greater insight into how supplier costs would be evolving in the quarter, chairman and president Galen G. Weston said. 

“You'll have to ask the packaged goods manufacturers what their perspective is on why they're not bringing retail prices down. They have a litany of explanations for us,” Weston said. 

He said the company would have expected the larger CPG brands to invest to drive volume as inflation-weary shoppers favour private label products. But that shift is happening slowly. 

“That's benefiting our control brands. Today our control brands are still growing faster than national brands, and we do think that that will rebalance itself at some point in the relatively near future. But, that really is up to the big brands to determine when and how,” Weston said. 

READ: Loblaw buys hydrogen fuel cell trucks as it looks to achieve zero-emission long-haul deliveries

Loblaw reported net earnings of $508 million in the second quarter of 2023, up 31.3% – elevated by a prior year charge at President’s Choice Bank. Revenue increased 6.9% to $13.74 billion.

Food retail same-store sales were up 6.1%, while drug retail same-store sales increased 5.7%. E-commerce sales increased by 13.9%.

Discount shift and changing demographics

Consumers’ search for value continues, as Loblaw’s discount banners outperformed its discount channel overall. But Dufresne noted that its market banners remain healthy despite the shift. 

“In our food business, market stores continue to perform well, lifted in part by the customer response to our President’s Choice summer product lineup,” Weston said. “The ongoing shift to discount continued to pick up steam, driving high growth in our stores. Our hard discount locations have never been busier with our highest-ever customer counts, double-digit growth and No Frills was recently named the most trusted store for low prices. And we’ll add 25 more to the network this year.”

READ: Loblaw releases 2022 ESG report

Weston also noted that Loblaw is refining its No Frills business to better serve its South Asian customers, in response to a question around changing demographics.

“You see demographic shifts, you see cultural shifts. There are markets where Canadians are moving to small towns. And there are small towns on the periphery of big cities that are growing faster today than they were at any point in the last 20 years,” Weston said. “We are continuing to build our pipeline of new stores so that we can meet that demand and make sure that we’re getting our fair share of the population growth in the country.”

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