Food bills are rising while food industry costs are soaring

The price of beef jumped 14 percent and bacon rose 20.2 percent, although food prices rose 3.8 percent overall.

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An astonishing combination of labor shortages, poor harvests and congested ports is leading to a rise in price and product shortages across the Canadian food industry, two of the country’s largest supermarket chains said on Wednesday.

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Loblaw Cos. Ltd. and Metro Inc. both gave quarterly updates on Wednesday as Statistics Canada reported a year-over-year increase of 4.7 per cent in the Consumer Price Index in October, the steepest rise since February 2003. The price of beef jumped. 14 percent and bacon rose 20.2 percent, although food total increased by 3.8 percent.

Loblaw – Canada’s largest food and drug chain – said its internal measure of inflation tends to be even higher than the CPI. Chief financial officer Richard Dufresne said suppliers have been trying to negotiate higher prices for their products since the summer to offset significant cost increases at manufacturing.

“We are working hard to negotiate those increases down so that we offer our customers the best value,” he said, adding that products in the central aisles are where consumers see the biggest rise because of the steep rise in meat- prices have “stabilized” recently. . “We pay a lot of attention to cost inflation.”

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Food makers, as one lobbyist said, say “everything” they do has become more expensive.

“We can’t absorb these significant increase costs, so we have to deliver those to the retailer, who then, in turn, delivers them to the consumer,” said Michael Graydon, chief executive of Food, Health and Consumer Products of Canada (FHCP). ), which represents producers.

We cannot absorb these significant increase costs, so we have to deliver those to the merchant, who then, in turn, delivers them to the consumer.

Michael Graydon

Factories are being forced to offer higher wages to combat labor shortages across the industry, while drought and fires across western North America this summer have reduced crops. Meanwhile, tight supplies have raised the cost of goods, from canola to beef.

Suppliers are also struggling to get crucial inputs, including packaging, due to supply chain complications and congested ports, which have only gotten worse due to the recent floods and mudslides in British Columbia.

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Both Loblaw and Metro said the problems mean some products are “assigned” – an industry term that means producers allocate a portion of their declining supplies to each retailer, rather than filling full orders.

Many of the shortcomings are in what Loblaw called “peripheral” product types, typically the secondary flavors or package sizes of a brand, something that was seen earlier in the pandemic. Manufacturers are trying to stay on top of demand spikes by reducing production of certain products, including Cool Ranch Doritos, to dedicate their limited resources to making more of their most popular products.

“What consumers will be frustrated to see is something in stock for a week, and then it’s exhausted for four or five weeks, then it comes back in stock and then it goes out. That’s really the consequence of this allocation approach, ”Loblaw president Galen Weston said during a call with analysts. “We have to work hard to make sure we get our share of the assignment, and I think we are.”

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Loblaw – which owns Real Canadian Superstore, Shoppers Drug Mart and No Frills, among other banners – has reserved quarterly net earnings of $ 488 million with revenues of $ 16.1 billion in the 16 weeks ended Oct. 9.

Its results were better than expected, Irene Nattel, an analyst at RBC Capital Markets, said in a note to clients, “with a solid peak return and continued gross margin gains.”

Loblaw’s in-store sales in food retail – a measure of year-over-year performance in retail – rose 0.2 percent, a considerable feat because public health restrictions on restaurants last year forced more people to buy food and cook at home. Loblaw said the “higher industrial inflation levels” in the last quarter helped offset lower trends in eating at home.

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Higher inflation also means buyers who stopped discounting banners during the pandemic are likely to return, Weston said.

At the peak of the pandemic, it made more sense for consumers to buy once a week at a full-service banner, such as Loblaws, rather than No Frills. Although not at pre-pandemic levels, discount is beginning to return, Weston said, “a trend we expect to continue as inflation appears in many aspects of our lives.”

Metro CEO Eric La Flèche said continued inflation means buyers will start to “trade down” – choosing the cheaper cut of meat, choosing frozen over fresh, or the store brand over the brand name.

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“If inflation is history for a long time, it can happen,” he said, adding that his teams could not advertise specific cuts of meat because such sales would not be attractive. “We hope to keep our marginal rates healthy and we are doing the best we can, but clearly there is inflation and we want to stay very competitive.”

Fourth-quarter sales at Metro, which also includes Jean Coutu pharmacies, were $ 4.1 billion, an annual decline of 1.2 percent, which the company blamed for “exceptionally strong sales last year due to the pandemic.” Sales increased six percent compared to the same quarter in 2019.

• Email: jedmiston@postmedia.com | Twitter:

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