The food going into grocery store shopping carts in Canada is changing as consumers face a nearly 10% increase in food prices, the head of one of the country’s largest supermarket chains said. “We are seeing double digit rates of inflation on basic commodities like eggs, flour and meat,” Michael Medline, president and CEO of Empire and Sobeys, said during an earnings call.
“Customers simply won’t and often cannot accept cost increases at some of the extreme levels we’re seeing … the reality is that a lot of Canadians are struggling under the weight of inflation.” Canadians are shopping around more, reducing impulse buys by sticking to shopping lists, and trading down from higher-cost items to more affordable products or brands, he said.
They’re also looking for more sales, shifting to discount banners and, at times, buying less overall. “People only have so much money,” Medline said. “They have to make hard choices. Periods of high inflation are terrible for Canadians.”
Medline’s comments came as Empire reported a fourth-quarter profit of $178.5 million, up from $171.9 million a year earlier, as its sales also climbed higher. Its profit amounted to 68 cents per diluted share, up from 64 cents per diluted share a year before.
Sales in the 14-week period ending May 7 totalled $7.84 billion, up from $6.92 billion, helped by the additional week of operations, the acquisition of Longo’s, higher fuel sales, increased food inflation, and the expansion of FreshCo in Western Canada and Farm Boy in Ontario. Same-store sales excluding fuel fell 2.5% compared to the COVID-elevated sales levels last year.
Empire is focused on supplier relationships and negotiations as well as its new rewards program to bring value to consumers, Medline said. The company’s new loyalty program Scene Plus will also help customers save money at the grocery store by earning and redeeming points for groceries, he said. The rollout of Scene Plus will begin in Atlantic Canada this summer and be available across the country by early next year.
Statistics Canada reported that the consumer price index rose 7.7% in May compared with a year ago. But the cost of food purchased at stores continued to outpace overall inflation, rising 9.7% compared with a year ago as the cost of nearly everything in the grocery cart went higher.
The cost of edible fats and oils gained 30.0% compared with a year ago, its largest increase on record. Pasta prices increased 17.1%, cereal products rose 12.5% and bread increased 11.1%. In the produce aisle, fresh vegetable prices rose 10.3% and fresh fruit was 11.3% higher year over year.
“Canadian food budgets are not increasing at the same pace as inflation,” said Matt Reindel, Empire’s chief financial officer. “Customers are logically making value decisions in our stores. The net impact of the value seeking customer is a lower of basket size overall.”
Meanwhile, Empire said its earnings continued to be positively impacted by the ongoing expansion and renovation of its store network.
The company’s online sales continued to grow in the quarter, though at a slower pace than at the start of the pandemic. Empire’s four e-commerce platforms experienced combined sales growth of 12% year over year, primarily driven by the acquisition of Grocery Gateway and continued growth of Voilà and partially offset by declines in IGA.net and ThriftyFoods.com, the company said.
Meanwhile, Empire continued its expansion of FreshCo in Western Canada, opening three locations in Alberta during the quarter. The company now has 40 of the discount stores operating in Western Canada. Empire also opened two new Farm Boy locations in the quarter, bring the store count to 44.