'It's impossible': Grocery CEOs say they are not causing food inflation

Loblaw president and executive chairman Galen Weston said "the idea that grocers are causing food inflation is not only false, it’s impossible." (THE CANADIAN PRESS/Spencer Colby) (The Canadian Press)

The top executives from Canada's biggest grocery stores say they are not causing or profiting from food inflation, pointing to higher supplier and input costs as key factors driving rising prices.

The CEOs and presidents from Loblaw (L.TO), Empire (EMP-A.TO) and Metro (MRU.TO) testified before the House of Commons agriculture committee on Wednesday as part of an investigation into food inflation.

All three leaders said grocers were not responsible for soaring food prices, noting that this period of high food inflation is a global phenomenon.

"For those who say grocers are profiteering, the math just doesn't add up," Loblaw president and executive chairman Galen Weston said, adding that food prices have increased 25 times faster than profit has. He says the company earns $1 in profit in a $25 grocery basket, which means that while the total basket price has increased by $4 since inflation took off 18 months ago, Loblaw's profit margin has gone up by 15 cents.

"At Loblaw, none of those profits came from higher food margins. Our retail prices have not risen faster than our costs," Weston said.

"So no matter how many times you read it on Twitter, the idea that grocers are causing food inflation is not only false, it's impossible."

The cost of groceries has soared in the past year, increasing at rates not seen in more than four decades. Food inflation has persisted, even as the broader Consumer Price Index has decelerated from the peak reached in June last year. Canada's inflation rate eased to 5.9 per cent in January, but the cost of food purchased from grocery stores increased 11.4 per cent, up from the prior month.

The persistently high prices have led to increased pressure and scrutiny on grocery retailers. In addition to the agriculture committee's study on food inflation, the Competition Bureau announced last October that it would examine grocery competition in the country and whether it has driven food prices higher.

How much profit is too much profit?Jagmeet Singh, leader of the New Democratic Party

Members of Parliament grilled executives on Wednesday about the increase in profitability at Canada's biggest grocery chains amid rising prices. They also asked about whether the grocers would commit to a grocery Code of Conduct, something currently in the works that aims to enhance "transparency, predictability and fair dealing" in the food supply chain.

NDP leader Jagmeet Singh, who has accused the grocers of "greedflation", subbed in for the party's agriculture critic and directed his questions to Weston.

"We have families that are struggling to buy food for their kids in this country, a G7 country, and they look at you and they see you making record profits. How can you justify that when families are struggling to put food on the table for their kids?" Singh said. "How much profit is too much profit?"

Weston said that "reasonable profitability is an important part of operating a business," repeatedly referring to Loblaw's $1 in profit for every $25 of groceries sold.

"We at Empire are not profiting from inflation. It doesn't matter how many times you say it, write it, or tweet it, it is simply not true," Michael Medline said, pointing to geopolitical events, rising input costs, extreme weather, soaring energy prices and labour shortages as factors contributing to rising prices.

"The truth is we are at the end of a very long food supply chain that has economic inputs at every step and stage."

Eric La Flèche also says Metro grappled with an "unprecedented number" of price increases from its suppliers through 2022. He says the company received more than 27,000 price increase requests last year, with the hikes averaging more than 10 per cent.

"This year, we continue to receive a large number of price increase requests from our suppliers," he said.

"I hope all members of the committee recognize that the entire supply chain is in an unprecedented period of prolonged stress. Focusing on grocers will not solve the problem of food inflation, because we are not causing it and we are not benefiting from it."

Senior executives from Loblaw and Empire had previously testified before the same committee in December, but at the time MPs questioned why the chief executive officers of Canada's largest grocers did not appear before the committee. Senior executives told the committee in December that rising supplier costs were to blame for soaring food prices and that retailers are not taking advantage of inflation to boost profit.

On Wednesday, all three executives referred to the absence of executives from U.S. companies that operate and sell groceries in Canada, such as Walmart and Costco.

"We compete against some of the toughest food retailers in the world including Walmart, Amazon and Costco, as well as a lot of other competition. That does not sound like an oligopoly to me," Medline said.

"This is not a problem with too little competition. The problem is that there is a global product cost inflation."

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

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