Grocery Chains Post Higher Profits on Falling Food Prices
Food prices, especially those for meat, continue to fall from recent highs, Metro and Loblaw said Wednesday as both grocery chains reported strong quarterly results.
“During the quarter, we saw the grocery market shift from an inflationary environment to a deflationary one,” said Galen G. Weston, executive chairman and president of Loblaw Companies Ltd., in a conference call with analysts.
Food inflation was particularly high last year — it reached nearly 4 per cent in the company’s third quarter in 2015, said Loblaw spokesman Kevin Groh.
Weston said the grocery industry is cycling through that unusually high inflation, and that’s the “biggest force” behind the transition to declining prices.
During the high inflationary period, Loblaw noticed shoppers were switching to cheaper items, and the company has been responding, Weston said.
“We’re reducing prices to see if we can draw the customer back in,” he said.
The strategy appears to be paying off, as the Brampton, Ont.-based grocer reported its profit more than doubled from the same time a year ago.
At rival Metro Inc., CEO Eric R. La Fleche said growth in food prices has been slowing.
There’s been little increase in the price of produce, he said, and meat costs have come down year-over-year.
The average retail price of one kilogram of pork chops, for example, is down from $13.16 in September 2015 to $12.55 this past September, according to Statistics Canada. One kilogram of ground beef dropped from $12.96 to $12.40 during the same time period.
Metro has taken advantage of falling food prices, La Fleche said.
“Pricier cuts of meat … which were less affordable a year ago, are now more affordable,” he said, noting that the company has seen the amount of beef that customers buy, including costlier cuts, rise.
Metro and Loblaw remain positive about managing a deflationary environment, with both companies reporting higher profits.
Metro’s fourth-quarter profit increased by 10 per cent compared with a year ago.
The Montreal-based company said it earned $145.0 million or 60 cents per diluted share for the 12 weeks ended Sept. 24. That’s up from a profit of $131.7 million or 52 cents per diluted share a year ago.
Sales in the quarter totalled nearly $2.93 billion, up from $2.83 billion in the same quarter last year.
For its full financial year, Metro said it earned $586.2 million or $2.39 per diluted share on $12.79 billion in sales — an improvement from its profit of $519.3 million or $2.01 per diluted share on $12.22 billion in sales in the previous year.
Loblaw said its stronger third-quarter profit was helped by improved sales and lower restructuring charges.
The corporate parent of the Loblaws grocery chain and Shoppers Drug Mart said it earned $419 million attributable to common shareholders or $1.03 per diluted share in the quarter. In the same quarter last year, the company recorded a profit of $166 million or 40 cents per share.
Excluding restructuring and other one-time charges, Loblaw said it earned $512 million or $1.26 per share for the quarter, up from $408 million or 98 cents per share last year.
For the 16 weeks ended Oct. 8, the company reported $14.14 billion in revenue compared with nearly $13.95 billion in the same quarter in 2015.