Food inflation changing how Canadians shop, eat, grocers say

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Higher food prices are pushing Canadians to eat at home more often than they did in the summer when the easing of pandemic-related restrictions in some jurisdictions drew people back to restaurants, executives from two major grocers said on Wednesday.

However, retailers are signalling that their food prices are rising as well, as they grapple with inflationary pressures. During calls to discuss the companies’ earnings on Wednesday, both Loblaw Cos. Ltd. and Metro Inc. executives said suppliers have been asking for more, and higher, price increases in recent months to deliver products to store shelves.

The reports came on the same day that Statistics Canada reported the fastest pace of inflation in nearly 19 years: In October, Canada’s Consumer Price Index (CPI) rose by 4.7 per cent. That included a 3.8-per-cent bump in food prices, with sticker shock even more pronounced on some items. The price of meat rose by 10 per cent, for example. The pressure is beginning to change shoppers’ behaviours, grocery executives say.

“Clearly there’s inflationary pressure, and that’s causing customers to look for value,” Metro chief executive officer Eric La Flèche said on an earnings call on Wednesday.

In response to factors such as commodity price increases, weather issues and labour shortages, suppliers have been raising their prices since the summer, he added.

Loblaw chairman and president Galen G. Weston said the company has seen the same trend.

“We’re going to continue to work hard on that, especially in the context of this inflationary pressure, trying to make sure that we are taking the cost increases that are justified, but that we’re not doing it if they’re unjustified or in a way that is detrimental to the customer experience,” Mr. Weston said on a call to discuss the company’s earnings.

Inflation often causes shoppers to cut back – shopping at discount rather than full-price stores, buying some frozen products in place of fresh and looking at different cuts of meat.

During the height of the COVID-19 pandemic, grocery shoppers became less price-sensitive, turning instead to full-price stores that stock a wider variety of items as they cut down on outings and stocked up more during each shopping trip.

Neither Loblaw nor Metro has yet seen customers flock back to discount banners at the pace they expected, but executives expect shoppers to become more price-sensitive in the coming months – a trend that could benefit Loblaw banners such as No Frills and Maxi, as well as Metro’s Super C and Food Basics chains.

“Our discount business welcomed many of its loyal, value-seeking customers back through its doors, a trend which we expect to continue as inflation is increasingly showing up in many aspects of our lives,” Mr. Weston said.

Rising commodity prices and labour shortages are also leading manufacturers to alter production plans and focus on their highest-volume items. That means that across the grocery industry, shoppers will notice secondary flavours or sizes of some products going in and out of stock at stores in the coming months, Mr. Weston said.

With customers becoming increasingly price-sensitive, both retailers said that more aggressive price promotions are visible across the industry. At the same time, Loblaw has been raising prices on some items after the company overinvested in lowering prices on some items during the pandemic. Those increases contributed to the company’s internal measures of inflation tracking slightly above the 2.6-per-cent CPI average quarterly national food price inflation measurement.

“On a macro basis, we’re really pleased with our continued price position relative to our competitors,” Mr. Weston said. Loblaw’s access to customer data through its PC Optimum loyalty program means that it is better able to offer targeted promotions to price-sensitive customers on certain items than it was the last time Canada experienced heightened inflation.

While the dining-in trend is not as pronounced as at it was when pandemic restrictions were far more widespread, grocery sales are still elevated compared to prepandemic levels. Demand for grocery e-commerce also continues to be higher than it was two years ago. Loblaw expects its online sales for the full year to grow to more than $3-billion.

“The online market is still growing, but at a slower pace,” Metro’s Mr. La Flèche said.

Metro reported net earnings grew to $194-million or 79 cents per share in the 12 weeks ended Sept. 25, compared with $186.5-million or 74 cents per share in the same period last year.

Loblaw’s net earnings available to common shareholders grew to $431-million, or $1.27 per share, compared with $342-million or 96 cents per share in the same period last year.

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