Bot­tom-line blues

Loblaw ex­pects higher min­i­mum wage rules will in­crease costs by $190M in 2018

The Guardian (Charlottetown) - - BUSINESS - BY LINDA NGUYEN

Loblaw Com­pa­nies Ltd. (TSX:L), Canada’s largest gro­cery and drug store op­er­a­tor, warned Wed­nes­day that min­i­mum wage in­creases in On­tario and Al­berta threaten to harm its bot­tom line and it will have to find ways to cut costs.

The com­pany, which owns Shop­pers Drug Mart and gro­cery chains in­clud­ing Loblaws and No Frills, es­ti­mates that the wage hikes will mean its labour ex­penses will bal­loon by about $190 mil­lion next year.

“We are flag­ging a sig­nif­i­cant set of fi­nan­cial head­winds and the or­ga­ni­za­tion is mo­bi­liz­ing all of its re­sources to see whether or not it can close that gap,” Loblaw chair­man and CEO Galen G. We­ston told an­a­lysts dur­ing a quar­terly earn­ings con­fer­ence call.

“At this point, we don’t know the an­swer.”

The On­tario gov­ern­ment has pro­posed leg­is­la­tion that would boost the hourly min­i­mum wage, which is cur­rently set to rise with in­fla­tion, from $11.40 an hour to $11.60 in Oc­to­ber, to $14 on Jan. 1 and $15 the fol­low­ing year.

The pro­vin­cial gov­ern­ment has said the wage in­creases are in­tended to in­crease peo­ple’s pur­chas­ing power and stim­u­late broader eco­nomic ac­tiv­ity. But a num­ber of busi­ness groups, in­clud­ing the On­tario Cham­ber of Com­merce and the Cana­dian Fed­er­a­tion of In­de­pen­dent Gro­cers, have de­cried the leg­is­la­tion, say­ing it will re­sult in job cuts.

In 2015, Al­berta an­nounced plans to hike its min­i­mum wage from $10.20 an hour to $15 an hour by next year.

We­ston called the wage in­creases “the most sig­nif­i­cant in re­cent mem­ory,” adding that the com­pany is ex­pe­dit­ing mea­sures to save money such as in­creas­ingly dig­i­tiz­ing man­ual in­voice jobs and rolling out more self-check­outs at its Shop­pers Drug Mart lo­ca­tions.

“We have a lot of work ahead of us as we’re still as­sess­ing the ex­tent to which we can mit­i­gate these head­winds,” said We­ston.

Loblaw said an­other an­tic­i­pated drag on its fi­nances will be Que­bec’s changes to generic drug prices. Last week, the Que­bec gov­ern­ment reached a five-year deal with the Cana­dian Generic Phar­ma­ceu­ti­cal As­so­ci­a­tion that would see the launch of new cost-sav­ing generic pre­scrip­tion medicine and re­duced prices.

The agree­ment will re­sult in lower generic drug prices be­gin­ning in the fall and is ex­pected to save the prov­ince more than $300 mil­lion a year.

There may be more chal­lenges ahead for Loblaw. Last month, U.S. e-com­merce gi­ant Ama­zon an­nounced a US$13.7bil­lion block­buster deal to ac­quire Whole Foods, a move some say could up­end Canada’s gro­cery in­dus­try.

Ear­lier Wed­nes­day, Loblaw re­ported a sec­ond-quar­ter profit at­trib­ut­able to share­hold­ers of $358 mil­lion or 89 cents per di­luted share, up from its profit of $158 mil­lion or 39 cents per di­luted share a year ago.

Rev­enue for the quar­ter ended June 17 amounted to nearly $11.08 bil­lion, up from $10.73 bil­lion in the same quar­ter last year.


A Loblaws store is seen March 9, 2015, in Mon­treal. Loblaw Com­pa­nies Ltd. says min­i­mum wage in­creases in On­tario and Al­berta and health care re­form in Que­bec are ex­pected to hurt its bot­tom line.

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