Loblaw gearing up to compete in price war

Second quarter net profit dropped nearly 15 per cent compared to last year

The head of Canada’s largest grocer says it’s prepared to duke it out in a price war with its rivals in order to stay competitive in a low-inflation environment.

Galen G. Weston, president at Loblaw Companies Ltd., said the company, which owns various banners including Loblaws, No Frills, Real Canadian Superstore and Shoppers Drug Mart, is actively fighting back against rising food prices by going straight to their suppliers.

Earlier this month, Loblaw sent a letter to its suppliers notifying them it will be applying an automatic 1.45per-cent price deduction on all shipments it receives beginning September 4 and that it will reject any future cost increases from suppliers unless they are related to higher input costs such as fuel charges or foreign exchange. A company spokesman would not comment on whether the grocery owner has received any type of response. During a call with analysts, Weston said Loblaw will “invest” the savings back into the customer, but would not elaborate if this means customers will necessarily see lower food prices at its supermarkets.

Last week, Statistics Canada reported that inflation for food softened to 1.3 per cent in June, after being above 3 per cent for 18 straight months prior to May.

On Wednesday, the company reported that its net profit dropped by nearly15 per cent in the second quarter from a year earlier.

However, its overall revenue was up $196 million or 2 per cent, rising to $10.7 billion from $10.5 billion a year earlier.