Jake Edmiston
Wed, February 8, 2023
metro-0208-ph
The heads of Canada’s top supermarket chains have so far snubbed parliamentarians investigating allegations of profiteering in the grocery business, exacerbating tensions with politicians who appear keen to confront the country’s oligopolies over inflation.
Quebec grocery giant Metro Inc. sent chief financial officer François Thibault to a hearing held by the Commons agriculture committee on the evening of Feb 6.
That’s not who some members wanted to see. Alistair MacGregor, the NDP member of Parliament from Vancouver Island who helped launch the profiteering inquiry late last year, wanted to know why Thibault’s boss, chief executive Eric La Flèche, didn’t show up instead.
“Your sector is going through a very deep crisis of confidence with the Canadian people,” MacGregor told Thibault. “Given the state of Canadian anger with the high cost of food, why wouldn’t Mr. La Flèche take the opportunity as the face of his company to publicly come here and defend it? Why is he not here today?”
Thibault responded: “Well, I’m a leader of the company.”
MacGregor was equally offended at the previous hearing, in early December, when Loblaw Cos. Ltd. and Sobeys’ parent Empire Co. Ltd., opted to send lieutenants instead of the CEO. The Retail Council of Canada, a lobby group that represents the grocers, said the original invitations didn’t ask for CEOs. But after the December hearing, MacGregor asked the committee to reissue invitations to Loblaw, Empire and Metro, this time specifically requesting that the head of the company show up.
But at the Feb. 6 hearing, La Flèche wasn’t there.
A matter of trust
MacGregor rattled off the various scandals that dog Canada’s big grocers, including the ongoing Competition Bureau investigation into allegations of bread-price fixing, and the 2020 Hero Pay affair that pushed Ottawa to strengthen rules against wage-fixing. The government is also pressuring the industry to create a new watchdog to stop the large retail chains from bullying farmers and food processors. And the Competition Bureau has launched a study of whether heavy consolidation in the food industry — where five retailers control roughly 80 per cent of sales — has helped drive inflation.
“And then we, you know, have a parliamentary inquiry into this matter, and for the three biggest chains in Canada, not one single head of the company came to publicly defend their company,” MacGregor said. “We do have the power to act, and whether that’s strengthening our competition laws or giving more resources to the Competition Bureau, those are options that we have. But my question to you sir is, what is the sector going to do to regain that trust?”
“Well, I firmly believe that customers show their trust every day,” Thibault responded. “We do hundreds of thousands of transactions every day.”
“So that’s it? You just – you think you do have the trust at present?” MacGregor said.
“Yes,” Thibault said. “We fight every day to gain that trust and keep that trust.”
“With respect, that’s completely opposite to what we’re hearing,” MacGregor said, just as his allotted time elapsed.
‘Look at the margins’
Canada’s top three grocers deny it, but they haven’t been able to shake accusations of profiteering from the worst food inflation since the early 1980s. Economists at progressive think-tanks, including the Canadian Centre for Policy Alternatives, have questioned how the chains have expanded margins and increased profits while grocery bills soared, up around 11 per cent year over year according to the latest consumer price index from Statistics Canada.
Metro, along with Loblaw, has urged its critics to consider their gross margins when trying to determine whether stores are marking up products more than necessary. Gross margin measures the portion of sales left over after subtracting the grocer’s cost on that product. So if a grocer hiked prices only enough to pass on cost increases from their suppliers, the company’s overall sales would increase but the margin would stay stable.
The grocers have said their gross margins on food sales are stable at best. Metro said in an earnings update last month that those margins are actually getting worse, as the company puts on more promotions to try to compete for cash-strapped customers.
“You have to look at the margins,” Thibault told the inquiry. “The food margin was lower and it was compensated by a larger margin in pharmacies.”
Metro owns the Quebec pharmacy chain Jean Coutu and Loblaw owns Shoppers Drug Mart. Both argue that as the pandemic waned, customers started buying more higher margin beauty products and over-the-counter cold medication, leading to an improvement in the overall gross margin. (Empire doesn’t own a national pharmacy brand and has said its improvements are coming from a three-year turnaround project that is aimed at finding $500 million in annual cost savings.)
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Accounting experts say the pharmacy explanation is plausible, but Metro and Loblaw’s public financial documents don’t break down the gross margin by category, so it’s impossible to confirm.
“When we look at the financial statements, there seems to be something a little bit opaque,” Bloc Québécois MP Yves Perron asked Thibault during the hearing. “Don’t you think that your industry would benefit from being more transparent about these kinds of facts?”
Thibault said Metro publishes its financial results according to the “accounting norms and standards that are in place.”
Liberal MP Leah Taylor Roy pressed further, asking why Metro doesn’t publish the data — regardless of whether it’s required by accounting guidelines.
“We can look at this any way you want and talk about all the costs that are coming through. But facts don’t lie. And executive pay has gone up. Dividends have gone up. You said investments have gone up. But workers salaries haven’t gone up,” she said. “I continue to hear this emphasis on margins and accounting guidelines. But I’ve also heard from you that you want transparency and everything has to be open. I don’t think there’s any requirement that you only report margins the way you are.”
Time ran out before Thibault could response to the question.
In a statement later, Metro spokesperson Marie-Claude Bacon declined to provide a breakdown of the company’s gross margins in food versus pharmacy. “It is information that we do not disclose,” she said in an email.
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