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Grocery officials push back on claims of padding profit amidst inflation

A Loblaws store is seen Monday, March 9, 2015 in Montreal. A labour expert says the situation unfolding in bargaining between Calgary Loblaw distribution workers and the grocery giant is emblematic of the wider labour movement amid the effects of the pandemic and rising inflation. THE CANADIAN PRESS/Ryan Remiorz
A Loblaw executive said that food prices have increased this year because supplier costs are up. (THE CANADIAN PRESS/Ryan Remiorz)

Canadian grocery store executives say that rising supplier costs are to blame for soaring food prices, and that retailers are not taking advantage of inflation to boost profit.

Representatives from Loblaw (L.TO) and Empire (EMP-A.TO) testified before the House of Commons agriculture committee on Monday as part of an investigation into food price inflation. With food prices increasing at rates not seen in more than four decades this year, pressure and scrutiny on grocery retailers have been on the rise. The Competition Bureau announced in October that it is launching a study to examine grocery competition in the country, and whether it has driven food prices higher.

Jodat Hussain, senior vice-president of retail finance at Loblaw, told the committee on Monday that food prices have increased this year because supplier costs are up.

"Loblaw is essentially a food distributor," Hussain said.

"We are dependent on what suppliers charge us when we set our retail prices. Fundamentally, grocery prices are up because the costs of products that grocers buy from suppliers have gone up."

Hussain says that the company has repeatedly resisted price hikes from its suppliers, pushing back on half a billion dollars worth of added costs in negotiations this year. He also points to the grocery giant's fight with Frito-Lay earlier this year, which saw shipments of chips temporarily stop after Loblaw refused to bite on higher prices.

Hussain says Loblaw's profit margin has not increased since inflation took off, an argument frequently cited by grocery executives.

"This gives us confidence to say Loblaw's prices are not growing faster than costs and we are not taking advantage of inflation to drive profits," Hussain said.

Pierre St. Laurent, the chief operating officer of the country's second-largest grocery chain Empire Co., also appeared before the committee and said that "as a business, we do not benefit from inflation."

"Many believe that retailers deliberately profit from inflation. I can't speak for other retailers, but I can assure you that this is completely untrue in Empire's case," he said.

"In the vast majority of cases, the increase in retail prices reflects the increased costs demanded by suppliers."

Food prices have soared over the past year, increasing 10.1 per cent in October, according to Statistics Canada. And relief from soaring prices is not expected to come in the next year.

A new study released on Monday estimates that a Canadian family of four will spend over $1,000 more on groceries in 2023, with food prices set to increase by up to 7 per cent next year. The Canada Food Price report says that "Canadians will continue to feel the effects of high food inflation, and food insecurity and affordability will also be a big issue with rising food prices."

The committee also heard testimony from Sylvain Charlebois, a professor of food distribution and policy at Dalhousie University; the Retail Council of Canada's senior vice-president Karl Litter; chief executive officer of Food, Health and Consumer Products of Canada Michael Graydon; and Fruit and Vegetable Growers of Canada executive director Rebecca Lee.

NDP MP Alistair MacGregor, who pushed for the agriculture committee's investigation, questioned why the chief executive officers of Canada's three largest grocers, Loblaw, Empire and Metro (MRU.TO), did not appear before the committee. In a tweet after the committee testimony, he says that the invitations to testify were sent to the companies and not specific individuals, and will be resent.

The committee is scheduled to return on Dec. 12.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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