Costco executive tells MPs the retailer is not profiting from food inflation

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Costco has not been increasing its profits as grocery prices have gone up, the head of the retailer’s Canadian operations told Members of Parliament studying the issue of food inflation – echoing the message of other major grocers who have come before the committee.

Pierre Riel, executive vice president and chief operating officer of Costco Wholesale International and Canada, appeared before the House of Commons committee on agriculture and agri-food on Monday evening – the last of the big five grocers called upon to answer questions about the rapid increase in the cost of food, and growing retailer profits.

“The final price our members pay for food is dependent on many factors at each stage of the supply chain,” Mr. Riel said in French, pointing to multiple factors such as global commodity markets, labour shortages contributing to higher wages, and prices charged by suppliers. The chief executive officers of other grocers such as Walmart Canada and Metro Inc. also pointed to stresses across the supply chain, emphasizing that retailers are not solely responsible for food inflation.

The price of groceries has been going up at the highest rate seen in Canada in almost four decades, outpacing the general rate of inflation. The annual inflation rate was 5.2 per cent in February, according to Statistics Canada, but grocery prices grew by 10.6 per cent on a 12-month basis. It was the seventh consecutive month of double-digit increases in food prices.

Mr. Riel told the committee that on a global basis, 58.5 per cent of Costco’s total pre-tax profits come from membership fees. The chain’s overall profit margin on the merchandise it sold worldwide over the past three years was 1.43 per cent, he added. He declined to provide numbers specific to the Canadian market.

“We work every day with our suppliers to reduce costs,” Mr. Riel told the committee. Asked about the chain’s practices with product vendors, he said that unlike other large grocers, Costco does not charge suppliers listing fees for putting products on its shelves, and also does not charge penalties such as for late deliveries.

Such fees have been contentious in the sector for years, and have led to discussions among industry groups to create a code of conduct to govern the relationships between retailers and their suppliers. A steering committee has now developed a draft of a self-regulatory code that has been distributed among companies across the industry. Mr. Riel said that Costco was not invited to be part of that committee, but is reviewing the draft now. However, when asked if the company would participate in a code once implemented, he provided conditional support for the process, saying Costco already has a productive relationship with suppliers.

“We will participate if the goal is to reduce costs for consumers,” he said.