Sobeys and Metro followed Loblaw’s cost-cutting move

Continued from FP1

With drops in key categories such as fresh and frozen meat (down 3.5 per cent), cereal products (down 4.9 per cent) and fresh fruit and vegetables (down two per cent).

In the summer, Loblaw asked its largest suppliers to cut costs by 1.45 per cent by September in response to what it called “unjustified cost increases” that the retailer had been in part passing on to consumers — more than $1 billion in supplier cost hikes since 2014, according to the company. The move came after a dissatisfying first quarter for Loblaw; though its same-store grocery sales were 2.6 per cent, just weeks earlier Metro had reported quarterly samestore increases of five per cent.

Metro has also asked its suppliers to cut costs, CEO Eric LaFleche told analysts on a call to discuss fourthquarter results.

“We will make sure that our cost position remains competitive with our competitors, so we have private discussions with our suppliers, one-on-one,” LaFleche said.

After Loblaw asked for cost reductions from suppliers, it was natural for Sobeys and Metro to follow suit, said Sylvain Charlebois, agriculture expert and dean of management at Dalhousie University in Halifax.

“A vendor would see its input costs go down and for the sake of transparency that vendor would go (to) Loblaw and tell them it was costing them less to produce a product, and give the (grocer) a discount. That’s what a good relationship would look like.”

A not-so-good-relationship would see a vendor not pass those input cost savings on to retailers, Charlebois said.

On the other hand, some suppliers argue that grocery retailers have implemented an increasing array of costs, vendor allowances and required vendor practices over the years that limit their profit and squeeze their businesses, and industry organizations such as the Food & Consumer Products of Canada have called for a retailer code of ethics.

At Loblaw, revenue rose 1.4 per cent in the third quarter ended Oct. 8 to $14.14 billion, up from $13.95 billion a year ago. Torontobased Loblaw also reported a strong boost in profit as it lowered its expenses, vastly surpassing analysts’ predictions.

The country’s biggest food and drug retailer reported profit attributable to common shareholders of $419 million, or $1.03 per share, compared with a profit of $166 million (40 cents) in the same quarter last year.

Loblaw’s internally-measured food price inflation was negative, reflecting deflation, below Statistics Canada’s 0.2 per cent growth in the period.

Excluding restructuring and other one-time charges, Loblaw earned $512 million, or $1.26 per share, up from $408 million (98 cents). That was significantly higher than mean analyst estimates of $1.12 per share.

Loblaw reported samestore sales growth of 1.4 per cent excluding gas at its grocery stores, with flat retail inflation.

Same-store sales at Shoppers Drug Mart grew 2.8 per cent overall, with 1.6 per cent sales growth in pharmacy and 3.9 per cent growth in its front-of-store sales.

Montreal-based Metro reported a 10 per cent earnings jump in the period ended Sept. 24 to $145 million, or 60 cents per share, compared with profit of $131.7 million (52 cents) in the same period a year ago. That beat analyst mean estimates of 57 cents, according to Thomson Reuters.

Sales rose in the quarter to $2.93 billion from $2.83 billion, while same-store sales, a key indicator of retail performance stripping out the effects of square footage growth, were up 2.8 per cent. The company’s internally measured food price inflation rate was 0.7 per cent.

Metro is holding its own, analysts noted, as pricing competition has intensified across the country, even though its network is centred in Quebec and Ontario.