Fierce competition amongst Canada’s largest grocery retailers will likely keep Loblaw Co. from raising its prices, even though the company says that higher raw materials costs are squeezing its profits.
“There’s got to be a pretty big justification for price increases in the condition that this market is in,” Loblaw president Allan Leighton said Wednesday on a quarterly earnings conference call with analysts.
“Economic conditions are a headwind, inflation is unpredictable at worst… the market is tough and proportionally intense and we still hover on the dark side of the moon,” he said.
Retailers are feeling pressure from rising commodity prices on everything from wheat and flour to coffee and cotton.
And while Loblaw has passed on some of the price increases that have affected its Joe Fresh private label clothing line, there has been “very little” movement in grocery prices.
In fact, grocers have recently been lamenting a decline in prices on key items which come as more recession-weary customers focus on value and costs rather than their loyalty to a specific chain.
“Consumer behaviour has changed and it changed when the recession took place, and it’s going to be like that for a period of time,” Leighton said.
“You cannot escape that consumer confidence is not in a good place and that people are concerned about the future and their own economics.”
On Wednesday, Loblaw reported its third-quarter profits increased almost 13% as revenues increased slightly and the company kept tighter management on its costs.
The country’s largest grocery store operator said earnings were $213 million in the 16-week period, up from $189 million in the same period a year ago.
Sales increased 1.3% to $9.6 billion, in line with analyst expectations, and up from $9.4 billion in the comparable period.
Leighton questioned whether the way grocers have competed with each other in recent years has left a lasting impression on consumers, and affected the way they will grocery shop for the long term.
“Clearly because the market’s been pretty aggressive, to a degree that affects consumer behaviour,” he said.
“There’s a bit of trend here and the way in which all the retailers are reacting in trying to drive sales clearly plays to that.”
Leighton warned that increasing raw material costs, the highly competitive environment and costs associated with revamping its stores and supply chain technology will put future sales and margins under further pressure.
The company has been reorganizing its operations over the past few years under a plan that included updating its supply chain and merchandise management as well as tightening costs.
Loblaw Co. operates under several banners including Loblaws, Fortinos and Great Canadian Super Store. Loblaw operates more than 1,000 stores across Canada under numerous banners which also include Zehrs, Provigo, No Frills and Atlantic Superstore.
