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House committee to probe big grocers' profits, prolonging industry's PR struggle

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no1005Medline-5

Canada’s three big supermarket chains will face a parliamentary inquiry into whether they have been exploiting surging inflation to boost their profits, adding a fresh chapter to the big grocers’ protracted public relations struggle.

The House of Commons agriculture committee voted unanimously in favour of a motion to summon grocery executives to Parliament Hill to explain why “large chains are making profits” while shoppers face the worst food retail inflation in four decades.

Michael Medline, who leads Canada’s second biggest supermarket chain, had previously spoken out against the push for a parliamentary inquiry, arguing that it was based a faulty political narrative meant to “score some points” in Ottawa.

The original proposal for an inquiry, announced last week by New Democratic Party member of Parliament Alistair MacGregor, used language that Medline said made it seem as though the committee “already has reached a conclusion.” The 12-member committee adopted more restrained language in its final motion, removing the reference to “profit-driven inflation” and instead cast the probe as trying to understand why the “cost of groceries are going up while large chains are making profits.”

Before the vote, MacGregor told the committee that they had a duty to investigate how the big grocers’ “stranglehold” on the market is impacting Canadian consumers. He read out an email from an anonymous “file maintenance clerk” at a grocery company who said they had seen proof that price increases on shelves were outpacing increases in the cost of goods.

Medline, chief executive of Empire Co. Ltd., the Stellarton, N.S.-based company that oversees 1,600 stores under the Sobeys, Safeway, FreshCo, IGA, Foodland and Farm Boy banners, said he hopes the committee focuses on facts.

“If people want to have inquiries that really can help Canadians, I’m all for it,” Medline said in an interview at Empire’s office outside Toronto on Oct. 4, a day before the vote. “A little good work beforehand, some reports and some facts, might be helpful instead of just, you know, trying to score some points by getting some grocery companies or retailers in front of Parliament.”

Still, Medline said he would participate in any investigation — even though his previous appearance at a parliamentary inquiry, in the summer of 2020, devolved into a sparring match with members of Parliament over the top grocers’ simultaneous cancellation of their so-called Hero Pay bonuses.

“I don’t think it’s any secret that I found the last parliamentary inquiry disappointing,” Medline said. “Some of it, if you read the transcript — which I’m not going to read again — it was a PR exercise.”

Medline has stood out in recent weeks as a rare food CEO willing to publicly challenge economists and consumer advocates who have asked why the three dominant grocery chains in Canada — Loblaw Cos. Ltd. and Metro Inc. are the other two — managed to fatten profit margins while their shoppers face the worst food inflation in four decades. In a controversial speech to shareholders at the company’s annual meeting last month, Medline called the critiques “reckless and incendiary,” spurred on by lazy “armchair quarterbacks” in government and media.

“From business leaders and from friends, I’ve never had a better reception to anything I’ve ever said,” Medline said of the speech. “I felt that something had to be said, and I said it. It got more attention than maybe I thought, which I’m glad of.”

One of the people who noticed was NDP Leader Jagmeet Singh, who observed on Twitter that Medline’s $8.65-million total compensation in 2022 represented a 15 per cent raise over 2021. “Did workers at his stores get a 15 per cent raise? No. Instead, he took away their hero pay during the pandemic,” Singh said, referencing the scandal of June 2020 that pushed Ottawa to change federal protections for workers.

“Look, I guess he has a job to do and a narrative to present,” Medline said in response.

However, Medline acknowledged that his industry’s reputation has taken a beating through several rounds of controversy, including Hero Pay and the protracted government campaign to stop grocers from using their market power to squeeze suppliers — a process that Medline has publicly supported. He said it’s understandable that, in periods of high inflation and economic uncertainty, that retailers that consumers visit most often end up facing the most questions about the cost of goods.

“I get it. Obviously I don’t think it’s fair in most cases. But I respect it and people can have their opinions and if it makes us a little sharper, and we can do even better, that’s great,” he said. “I would ask, probably, if I had the ask, that people not just read little tweets or social media posts, but look behind it to see what’s actually going on.”

Canada’s top three grocers have said their higher profits and wider profit margins are coming from other factors and have nothing to do with the broader inflation story. For example, one common explanation is that pharmacy departments are benefiting from increased demand for high-margin health and beauty products, now that pandemic restrictions have been lifted and people are going back to offices and parties.

But accounting experts say it’s difficult to figure out whether those explanations are true using just the data included in public financial statements, leading to calls for a public inquiry into the source of the profits.

“If we really want to get to the bottom of it, there needs to be some objective, third-party analysis,” Robin Shaban, a former officer at the Competition Bureau and co-founder of a think-tank called the Canadian Anti-Monopoly Project, said last week.

But Medline said the public financial statements of Empire and its main competitors are enough to prove there isn’t any profiteering going on. He also added that, in its most recent quarterly report, Empire’s profit dipped by $1 million to $187.5 million.

“You can look at our numbers, and they tell the whole story,” he said. ” We would be doing better, if not much better, without inflation.”

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