Canada’s largest grocer is stepping up its public relations strategy to convince people that it is not to blame for higher prices. But experts say consumers grappling with food affordability are in no mood to hear that message.
On the day that its 11-week price freeze on No Name products ended on Tuesday, Loblaw Cos. Ltd. L-T was active on Twitter, responding to people who criticized the company with messages explaining that “food inflation is a global issue” and that price increases were the fault of suppliers who had themselves raised prices. Other Loblaw tweets heralded the price freeze for helping consumers “at a time they needed it most.”
But the defensive tone didn’t sit well with many, and is emblematic of a larger communications challenge facing Canada’s grocery retailers, who have reported significant increases in both sales and profits amid inflation. As the last point of contact in a sprawling supply chain, grocers have been a target for shoppers’ understandable anger over the affordability of basic necessities.
In a statement on Wednesday, Loblaw spokesperson Catherine Thomas wrote that customers’ responses to the No Name price freeze, loyalty point offers and the company’s efforts to keep gross profit margins flat in grocery stores have “been massively positive.”
“It’s a different story on Twitter,” she wrote. “There are a hundred complicated reasons that food prices are up. Unfortunately, it’s easiest to blame grocers, as we’re seeing globally. If we don’t put the truth out there, no one will.”
But while Loblaw sees this as an attempt to explain the basics of inflation and supply chains, consumers may bristle at a lecture.
“This isn’t just a question of controlling the narrative, because the story is so complex,” said Queen’s University marketing professor Ken Wong, citing the various factors that influence food price hikes, such as rising costs of fuel and wages, geopolitical factors including the war in Ukraine, and cost increases from suppliers who in turn are grappling with their own rising costs. “I don’t know that the consumer really wants to hear it; what the consumer wants to see is lower prices, period.”
Grocers and manufacturers alike are warning, however, that lower prices are not immediately on the horizon.
At the World Economic Forum in Davos, Switzerland, last month, Alan Jope, the chief executive officer of consumer-goods giant Unilever PLC, said the industry had not yet reached “peak prices.” Last week, Metro Inc. CEO Eric La Flèche said the company was facing thousands of cost-increase requests and warned that more price hikes will hit shelves in the coming weeks.
And on Wednesday, the Canadian Federation of Independent Grocers confirmed that PepsiCo-owned potato-chip manufacturer Frito-Lay imposed price increases on a number of its member stores this week. The snack food conglomerate, which owns brands such as Lay’s, Doritos, Miss Vickie’s and Tostitos, made headlines last year when a standoff emerged with Loblaw Cos. Ltd. over an earlier price-increase demand.
PepsiCo PEP-Q did not respond to a request for comment on the price increase, or answer questions about whether the increases were also imposed on its larger grocery partners in addition to the independents.
“The timing of the Pepsi-Frito Lay price hike, coming exactly one week before the House of Commons resumes its hearings on price inflation, is actually good in that it again shows that there are many price increases being imposed on retailers,” said Gary Sands, vice-president of government relations for the Canadian Federation of Independent Grocers. “If you are, for example, an independent grocer with [profit] margins of around 2 per cent, then increases in costs such as the double-digit price hikes from Frito-Lay, simply have to be passed on to the consumer. There is no other option.”
Canada’s grocery sector has faced pressure over the unusual pace of growth in food prices, which have outpaced general inflation for months. Grocery prices rose by 11 per cent in December compared with the same month the prior year, according to Statistics Canada, slowing only slightly from 11.4-per-cent annual growth in November.
Retailers have stressed that they are not profiting from inflation, attempting to send the message that they are just one part of a complex global supply chain in which costs are increasing at every step.
But claims about profits can be difficult to unpack.
For Loblaw, overall profit margins in the retail segment have indeed been going up. The company’s executives have attributed this to people buying more high-margin items, such as beauty products, especially at its Shoppers Drug Mart stores. (Drugstore sales account for roughly 28 per cent of Loblaw’s overall retail segment revenue, while grocery stores account for the rest.) And they say margins are much lower for food: Grocers tend to make less than 4 cents in profit on every dollar they sell, Loblaw senior vice-president of retail finance, Jodat Hussain, told a parliamentary committee examining food price inflation in December.
Understanding just how much, or whether, grocers profit margins have risen is complicated, however, because companies such as Loblaw and Metro Inc. do not separately report profit numbers for their grocery stores and pharmacies.
“It’s not transparent, and people will attribute that you might have something to hide,” said Ravi Dhar, a Yale School of Management professor who researches customer behaviour. “Transparency is one way to change that belief, if you show, ‘This is how much we make in our grocery business.’ … Show people the margins for these products is not that high.”