Loblaw Companies Ltd. L-T saw profits spike by 29 per cent in the third quarter, which the company attributed primarily to growth in sales at its drugstores – and attempted to send the message that it is not profiting from food inflation.
Canada’s largest grocer on Wednesday reported net earnings available to common shareholders of $556-million or $1.69 per share in the 16 weeks ended Oct. 8, compared to $431-million or $1.27 per share in the same period last year.
In a release on Wednesday, the Brampton, Ont.-based company wrote that its gross profit margins in food retail did not increase compared to the same period last year, when inflation began accelerating. Loblaw profited from increased sales of drugstore categories such as beauty products and cough and cold medicines, which have high profit margins, according to the company.
Canadian grocery store operators have faced increasing scrutiny as prices for basic necessities have risen at a pace not seen in this country in 40 years. Last month, the Competition Bureau launched a study of the industry, to explore how the government could improve competition in the sector. The bureau said it was not investigating any specific allegations of wrongdoing.
Grocers have insisted that they are not profiting from an inflationary environment, and that they are also facing rising costs for everything from transportation to buying products from suppliers to stock their shelves. In September, the chief executive of Sobeys owner Empire co. Ltd. referred to such criticism as “reckless and incendiary attacks,” and said claims of “greedflation” were untrue.
Loblaw last month announced a temporary price freeze on its house-brand No Name products until the end of January, but the move was met with skepticism, as it promoted the retailer’s own private-label products. Rival grocer Metro Inc. said in a statement at the time that it is common practice in the industry for retailers to refuse requests for cost increases from suppliers at this time of year as the holidays approach – which raised questions about whether Loblaw was attempting to promote a move that it would have quietly made anyway. Loblaw denied this.
Customers squeezed by inflation have been buying more private-label products and flocking to discount grocery stores such as Loblaw-owned No Frills and Real Canadian Superstore. Loblaw reported on Wednesday that sales were led by its discount banners. Overall, revenue increased by 8.3 per cent in the quarter, to $17.4-billion.
Same-store sales – an important metric that tracks sales growth not tied to new store openings – rose by 6.9 per cent at Loblaw’s grocery stores, and by 7.7 per cent at its Shoppers Drug Mart chain. E-commerce sales increased by 3 per cent.
In the statement, Loblaw wrote that its internal food inflation was “generally in line” with the increases tracked by The Consumer Price Index.
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