Canadian consumers are increasingly shopping at discount grocery chains, buying store-branded food and choosing less pricey pork or chicken rather than beef in an effort to save money amid soaring inflation, Loblaw Companies Ltd. said Thursday.
The parent company of Loblaws and Shoppers Drug Mart said rising food prices are beginning to shape customer shopping habits.
"They are becoming increasingly price sensitive. There's no question about that," Galen G. Weston, Loblaw chairman and president, said during a call with analysts to discuss the company's fourth-quarter and full-year results.
"We see it most notably in the accelerating performance of our discount business."
The economy is reopening from pandemic lockdowns, which he said could be influencing the return to discount chains such as No Frills and Maxi. Many people favoured one-stop shopping at conventional supermarkets with more selection and services during the pandemic.
Meanwhile, the grocery chain is also seeing early signs of shoppers "trading down" into less expensive product categories.
"People will trade down from beef into pork or chicken," Weston said, adding that while the company would expect that to continue, it's not yet at an "extreme level."
The retailer is also seeing strength in its so-called control brands, also called private label or house brands, he said.
Meanwhile, the company is working to minimize shelf price increases as suppliers seek to raise prices.
"Our shelf price is the tail end of a chain of costs," Loblaw chief financial officer Richard Dufresne said during the call. "We watch this very carefully and focus on ensuring that our retail prices are competitive."
The issue of rising costs was thrown into the spotlight after Frito-Lay Canada, one of the country's biggest food manufacturers, halted shipments to Loblaw stores after the grocer refused to accept a wholesale price hike. The situation has left the chip and snack food aisle of many Loblaw stores stocked with the retailer's President's Choice and No Name brands.
The grocer declined to comment on its specific discussions with food suppliers, but Dufresne offered a glimpse into how the price negotiations take place.
"We have a team of experts and they deconstruct the cost of each (stock-keeping unit) into its components such as the raw ingredients, packaging, labour and transport," he said.
"Using their analysis, we're well-positioned to assess the requests that are sent our way."
Loblaw, the largest supermarket chain in Canada, also deals with a large number of vendors, which provides the company with "a very strong perspective on what's happening on cost increases," Dufresne said.
Looking ahead, the company said it expects sales will benefit from the ongoing pandemic and higher industry-wide inflation in the first half of 2022. But Loblaw cautioned its grocery and drugstore revenue growth could taper toward the end of the year as easing restrictions dampen its revenue gains and earnings are compared against higher prices last year and its COVID-19 vaccination program.
Meanwhile, Loblaw said its fourth-quarter earnings benefited from strong demand as consumers continued to eat-at-home, particularly over the holiday period.
The company said its quarterly profit more than doubled compared with a year ago, boosted by a one-time gain related to a Supreme Court decision on a tax case.
The grocery and drugstore giant said its net earnings available to common shareholders totalled $744 million or $2.20 per diluted share for the 12-week period ended Jan. 1. The result compared with a profit of $345 million or 98 cents per diluted share for the 13-week period ended Jan. 2, 2021.
Revenue totalled nearly $12.8 billion, down from nearly $13.3 billion a year earlier when the quarter included an extra week.
The most recent quarter included a recovery of $301 million related to the Supreme Court's decision on the Glenhuron Bank Ltd. tax case involving Loblaw Financial Holdings.
This report by The Canadian Press was first published Feb. 24, 2022.