Loblaw Fielding 1,000+ Supplier Cost Increase Requests, Expects Inflation to Remain Elevated

Loblaw Cos. Ltd. top brass say the company expects inflation to remain elevated through the first half of this year as supplier cost increase requests continue to roll in. 

“We expect managing the balance between cost and price inflation will remain difficult,” Galen G. Weston, chairman and president at Loblaw, told analysts Feb. 23. “We are seeing some costs stabilize and even begin to reverse in a few areas, and we are actively lowering prices in key categories. However, we still have over 1,000 supplier requests on our desks for significant cost increases. We continue to believe that these inflationary pressures are temporary, and that they will ease with time, but predicting how long that will take is proving extremely challenging.”

Weston was joined by Richard Dufresne, CFO, and Robert Sawyer, COO, on the company’s fourth quarter earnings call. 

The retailer’s revenue was up 9.8% in Q4 2022 to CAD$14 billion. Retail segment sales rose 9.7% to CAD$13.7 billion.

“The No Name price freeze was an important driver of that success, as was the strength of our weekly promotional programs,” Weston said. “One notable item in the quarter was the outstanding growth in our prepared meals categories as customers chose fresh prepared food and great value as an alternative to dining out.”

Food retail same-stores sales increased by 8.4%, while drug retail same-store sales increased by 8.7%, with front store same-store sales growth of 11.5% and pharmacy same-store sales growth of 5.4%. 

“Though discount continues to outperform conventional grocery, our market banners are also delivering strong results,” Sawyer said. 

One such store to deliver positive results was Asian grocer T&T Supermarket, which opened its first location in Quebec in December.

“The store has been a roaring success serving an eager customer base, who lined up for hours day after day, breaking all Loblaw sales records for a new store,” Sawyer said. 

E-commerce sales increased by 8.3%, but Weston said it’s too early to say what the segment’s growth rate will be.

“It's going to take us, I'm going to guess, now through the balance of 2023 before we have a really clear sense of what this new run rate is for e-commerce,” he said. 

Revenue for the fiscal year came to CAD$56.5 billion, an increase of 6.3%. Looking ahead to 2023, Loblaw expects its retail business to grow earnings faster than sales.

Weston said the company is committed to pushing back on “unjustified” cost increases. Loblaw recently reaffirmed its commitment to No Name prices being an average of 25% less than national brands. 

“Our Q4 results are further evidence that retail prices are not growing faster than costs and the company is not taking advantage of inflation to drive profit,” Sawyer said.

Weston said the shift to discount remained steady in the fourth quarter of 2022. 

“It hasn't slowed down, it hasn't sped up. Controlled brands continue to be very, very strong, particularly at the lower end with No Name, although you can imagine that was supported significantly by the price freeze in the quarter,” he said. “There's a shift happening in proteins, as you would normally expect, away from higher priced proteins like beef towards lower priced proteins like chicken or pork… It remains an intensely competitive environment. We're still not all the way back to promotional penetration levels that we had pre-COVID… But it certainly continues to ramp up and we're seeing customer price sensitivity really across the board promotionally.”

As for what’s driving positive growth for the PC Optimum loyalty program, Weston said it's twofold. 

“Our points value proposition is viewed by customers to be an equivalent to cash… We saw a noticeable but not significant increase in the rate of redemption,” he said. “So, people essentially using their points to reduce the cost of their grocery bills. But I wouldn't over rotate on that trend. It's notable, but it's not it's not a massive shift off what would be typical. And then the second thing that's been happening is the number of actively engaged PC Optimum users has been growing at a very satisfactory rate.”

Loblaw Cos. Ltd. operates nearly 2,500 stores and national e-commerce options in Canada, with more than 190,000 full- and part-time employees. The Brampton, Ontario-based company is No. 11 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America.