'Distressing': Empire facing 'ridiculous' cost increases from major suppliers, says CEO
Alicja Siekierska
Thu, December 14, 2023
Empire CEO says major suppliers are asking for 'ridiculous' cost increases. (THE CANADIAN PRESS/Graeme Roy) (The Canadian Press)
Empire's (EMP-A.TO) chief executive says the grocery chain is facing "ridiculous" cost increase requests from some of its largest suppliers, something that could result in "a few holes" on grocery store shelves in the new year.
Michael Medline, chief executive of the parent company of Sobeys, Safeway and Farm Boy and other grocery retailers, said on Thursday that the company has received cost increase requests from "several big multinational (consumer packaged goods)" companies for February. He called the price increase requests "distressing" and "ridiculous."
"They just can't be justified. Inflationary times are not an excuse to pass every single rising cost on to grocers, and more importantly to Canadians," Medline said on a conference call with analysts on Thursday, adding that "this was not the way business was conducted before these inflationary times."
"We have instructed our national sourcing team to be even tougher on this latest round of cost increase requests. We will not take unfair cost increases and pass them on to Canadians. It's not the right thing to do, and if that results in a few holes on our shelves, we believe that Canadians will more than understand."
Medline says Empire may try to keep costs down through the expanded use of its in-house, private label brands, where the company has "greater visibility and control over prices."
Food prices have remained stubbornly high in Canada and above headline inflation, although growth has been gradually slowing in recent months as inflation cools. Canada's annual inflation rate fell to 3.1 per cent in November, with food price growth slipping to an annual rate of 5.4 per cent.
The persistently high prices have led to increased scrutiny and public blame on Canada's grocery chains, including Empire. Industry Minister François-Philippe Champagne met with the top executives from Canada’s biggest grocery chains earlier this year to discuss efforts to stabilize food prices.
Standing firm
Medline says Empire has submitted a detailed plan to Champagne to stabilize food prices, and the company has taken "further actions" to narrow the gap between the Consumer Price Index and food inflation, although he did not provide additional details.
"As I said to our supplier partners, I've got to emphasize that all key players in the foodsupply chain have a role to play in stabilizing food prices, not only grocery retailers," Medline said.
"I don't know how this is going to end ... we've said all along we'll take fair cost increases. We will not take unfair cost increases and pass them on to Canadians."
Loblaw (L.TO) had said earlier this year that it was facing cost increases from its food suppliers, including multinational consumer packaged goods companies. The grocery retailer says as of May, the cost increases from suppliers totalled nearly $1 billion.
Medline's comments came as the company saw its adjusted profit slip to $178.3 million, or 71 cents per share, in the second quarter of the year, compared to $189.9 million, or 73 cents per share, during the same period last year. Total sales increased to $7.75 billion, up from $7.64 billion last year.
Empire shares fell more than 9 per cent in the wake of the quarterly results. They were trading at $35.31 per share mid-afternoon on Thursday, a drop of more than 9 per cent compared to Wednesday's close.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
Alicja Siekierska
Thu, December 14, 2023
Empire CEO says major suppliers are asking for 'ridiculous' cost increases. (THE CANADIAN PRESS/Graeme Roy) (The Canadian Press)
Empire's (EMP-A.TO) chief executive says the grocery chain is facing "ridiculous" cost increase requests from some of its largest suppliers, something that could result in "a few holes" on grocery store shelves in the new year.
Michael Medline, chief executive of the parent company of Sobeys, Safeway and Farm Boy and other grocery retailers, said on Thursday that the company has received cost increase requests from "several big multinational (consumer packaged goods)" companies for February. He called the price increase requests "distressing" and "ridiculous."
"They just can't be justified. Inflationary times are not an excuse to pass every single rising cost on to grocers, and more importantly to Canadians," Medline said on a conference call with analysts on Thursday, adding that "this was not the way business was conducted before these inflationary times."
"We have instructed our national sourcing team to be even tougher on this latest round of cost increase requests. We will not take unfair cost increases and pass them on to Canadians. It's not the right thing to do, and if that results in a few holes on our shelves, we believe that Canadians will more than understand."
Medline says Empire may try to keep costs down through the expanded use of its in-house, private label brands, where the company has "greater visibility and control over prices."
Food prices have remained stubbornly high in Canada and above headline inflation, although growth has been gradually slowing in recent months as inflation cools. Canada's annual inflation rate fell to 3.1 per cent in November, with food price growth slipping to an annual rate of 5.4 per cent.
The persistently high prices have led to increased scrutiny and public blame on Canada's grocery chains, including Empire. Industry Minister François-Philippe Champagne met with the top executives from Canada’s biggest grocery chains earlier this year to discuss efforts to stabilize food prices.
Standing firm
Medline says Empire has submitted a detailed plan to Champagne to stabilize food prices, and the company has taken "further actions" to narrow the gap between the Consumer Price Index and food inflation, although he did not provide additional details.
"As I said to our supplier partners, I've got to emphasize that all key players in the foodsupply chain have a role to play in stabilizing food prices, not only grocery retailers," Medline said.
"I don't know how this is going to end ... we've said all along we'll take fair cost increases. We will not take unfair cost increases and pass them on to Canadians."
Loblaw (L.TO) had said earlier this year that it was facing cost increases from its food suppliers, including multinational consumer packaged goods companies. The grocery retailer says as of May, the cost increases from suppliers totalled nearly $1 billion.
Medline's comments came as the company saw its adjusted profit slip to $178.3 million, or 71 cents per share, in the second quarter of the year, compared to $189.9 million, or 73 cents per share, during the same period last year. Total sales increased to $7.75 billion, up from $7.64 billion last year.
Empire shares fell more than 9 per cent in the wake of the quarterly results. They were trading at $35.31 per share mid-afternoon on Thursday, a drop of more than 9 per cent compared to Wednesday's close.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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