Agriculture Committee on Dec. 5th, 2022

[Jodat Hussain]

That's our job: to offer the best possible value to our customers.

We're in the customer business, and we're in a very competitive sector. Our principal motive is to have the best possible prices in our stores at all times.

Our values spectrum is quite broad. We're offering a record number of loyalty points this year, which is going to top over a billion dollars. We continue to offer ad match at our discount stores; if you can find a better promoted price, we'll match it in the store. We have a strong control brand assortment. We doubled down on it by freezing the No Name prices. As far as I know, that scale of program is unprecedented. We're freezing over 1,500 prices. Also, we continue to have a very strong weekly flyer to make sure we have the best promotions week by week. That is part and parcel of every day to win the customer.

[Ryan Turnbull, Liberal, Whitby, ON]

Yes, thank you for that.

I also note, based on publicly available information, that you've also raised shareholder quarterly dividend payments by 11%. This leads me to sort of say, okay, as a large corporation in Canada, you're generating significant profits and you're increasing dividend payments for your shareholders, which is fine, but again, I'm interested in how we can make life easier for the average Canadian family that is struggling to purchase their basket of goods at the grocery store. Is there anything else—I know you're priding yourself on being a good corporate citizen—that you can do?

I'm not here to paint corporations as monsters or anything. I'm really taking at face value the things you're saying. I'm just interested in how Loblaw, in a time of crisis that the country has gone through, can be really helping Canadians pay for their groceries. Is there anything else Loblaw is prepared to do, other than freezing the prices of the No Name brand? It's a good step, but I think the prices might have been frozen at a fairly high level, as far as I can tell, just given the time.

[Jodat Hussain]

I would welcome this committee's investigation into this matter. Inflation is a complicated question, and there's no one player in the global value chain that can influence it. I have been looking at all aspects of it as being important.

For grocers—and for Loblaw, in particular—there are two things we do that are absolutely critical to keeping inflation down. The number one thing, which I spoke to in my remarks, is us acting as the countermeasure and making sure we don't accept unjustified cost increases from the supplier base. That is the number one thing we can do. Ninety-six cents of what is in the grocery basket is grocer cost, so that is the number one thing we need to focus on and keep doing.

Secondly, we need to be offering the best value in our stores at all times, because the industry is so competitive. I spoke to the measures we're doing, and we'll continue to do that.

[The Chair, Liberal, Kody Blois]

We will leave it at that.

Thank you, gentlemen.

We will now go to Mr. Perron.

You have the floor for six minutes.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Thank you, Mr. Chair.

Thank you to the witnesses for being with us today.

Obviously, we are looking for information. We are not holding a trial, but nonetheless, certain questions have been raised in response to the release of the financial statements.

Mr. Hussain, I appreciate your being here at our committee. You said that the gross margin on grocery products had not increased. If I understood correctly, you said there were no more profits than before, in terms of the gross margin on grocery products.

[Jodat Hussain]

That is correct. Our gross margin has been flat since inflation took off.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

So how do you explain the significant increase in your profits?

[Jodat Hussain]

Our net income in Q3.... The rate of net income was 3.8%, as I mentioned previously. That is not unusual for our business. That net income is not just a function of food; it's a function of several other businesses that fall under the Loblaw umbrella.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Right.

So you can provide us with those figures showing the breakdown and details. You know, when we look at the documents, it is not an easy task for us to find that information. That is what Ms. Rood asked you for earlier.

[Jodat Hussain]

We provide full financial statements of our total business. We provide qualitative disclosure in terms of what our individual segments are doing. I believe it's on page 11 or 12 in our financial statement, depending on the version you're looking at.

That's where we give qualitative disclosure. We don't give quantitative disclosure, but rather qualitative disclosure around what is happening to our food margins and our drug margins. We stated our food margins publicly in that document, and our earnings there have all been flat.

I have taken a note of what—

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

As you said to Ms. Rood earlier, we would be grateful if you would provide the committee with that information so we can see it properly.

Mr. Hussain, you said that several factors influenced inflation. We also know suppliers are charged fees for what seems to be to finance long-term investments. Mr. Charlebois from Agri-Food Analytics Lab also talked about that in his opening statement.

According to the testimony we have heard in the committee, the charges to processors represent about 18% of costs in the United States, as compared to 28% in Canada.

How do you explain such a large difference between Canada and the United States?

[Jodat Hussain]

I don't know the specifics of that differential or what the base is of that report citing the difference in costs.

In terms of costs, what we charge is contractual. That's an agreement we arrive at with our suppliers, in advance of their products being listed with us. It's customary in terms of how we're operating. We have a fairly equitable process to evaluate whether our relationship with the supplier is balanced. I gave an example of that in terms of how we gauge cost increases, because that's a fundamental interaction we have with the suppliers. We have processes in place to make sure that relationship remains balanced, because they are key partners in our business.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

If the increase in product prices we are seeing at the grocery store is directly related to the increase in suppliers' costs, how do you explain the fact that food prices have risen much faster in grocery stores than in restaurants? Restaurants essentially also buy from the suppliers.

How do you explain the fact that between October 2019 and October 2021, prices rose by 13.9% in restaurants and by 18.1% in grocery stores?

[Jodat Hussain]

The restaurant sector and the grocery food sector are fundamentally a bit different in the value chain that each offers, particularly in terms of how much of a grocery bill is actually food versus a value-added service that goes on top of it. When there's labour service and so forth, the margin structure is different. I don't think it's appropriate to draw a one-for-one comparison between restaurant performance and grocery performance.

I would note, though, that if you think about Canada versus every other G7 country, we're doing quite well compared to our nearest neighbour. There hasn't been a quarter since the Q2 of 2020 when the Canadian food price inflation has been higher than in the U.S.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Because I have only 15 seconds of speaking time left, I am going to ask you a brief question.

The freeze on the prices of no name^TM products is a good thing, but it came right when the House of Commons had just passed a motion for the committee to do a study of this issue.

Did the decision of the House of Commons influence your decision to freeze prices?

[Jodat Hussain]

We're always looking to offer value to our customers. Even in advance of the No Name price freeze, we gave out a record number of loyalty points that will top $1 billion.

No, we're giving value all the time.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Hussein and Mr. Perron.

Mr. MacGregor, you now have the floor for six minutes.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you very much, Mr. Chair.

Thank you to all of our witnesses for being here today.

Mr. Hussain, I would like to start with you. When I put together my witness list for this study, I specifically requested for Mr. Galen Weston to appear. Is there any reason Mr. Weston is not here after receiving an invitation from a committee of the House of Commons, and you're here in his stead?

[Jodat Hussain]

I run retail finance at Loblaw. Prior to that, I ran the planning group at Loblaw and I had a stint running the commodities group, which evaluates inflationary cost requests from our suppliers. In our company, I am best suited to speak to the matters at hand as they relate to inflation and how that impacts both our financial statements and our operations.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Could Mr. Weston have appeared, but he decided to send you in his stead?

[Jodat Hussain]

The company sent me because I'm the closest to these matters and able to respond to the committee with a high degree of specificity.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

We'll just leave it at that.

We have a report that came out recently from the Centre for Future Work. It notes that profits in the food retail sector as a whole grew by 120% from 2019 through to this latest period, swelling by $2.8 billion.

I took note of your opening statement of the pressures that you are going through. We've had many witnesses before this committee reflect on the same costs. Despite all of those pressures, we have taken note of the fact that those profits have gone up.

I don't want to repeat some of the questions that my fellow colleagues around the table have asked, so I'll turn to the pay that workers in your industry receive.

The price of groceries went up by over 10% in one year. That's twice as fast as workers' wages, at 5.4%. I also note that your industry, during the middle of the pandemic, cancelled the “hero pay”, which was very necessary for a lot of workers to get through that very tough time.

When you look at the profits and the fact that your industry cancelled the “hero pay”, what kind of a message is that sending to people about the value that your employees provide in your industry, if their wages are not rising as quickly as the very groceries they need to pay for?

[Jodat Hussain]

Our colleagues and our employees are the lifeblood of Loblaw. Grocery, in general, is a very labour-intensive industry, and your experience as a customer is only as good as your experience in the store.

Colleagues are fundamental. We are predominantly—in our grocery stores, in particular—a unionized shop, and we proudly participate in the collective bargaining process. Our unions advocate quite well for the employee population. Any deals, and most deals—in fact the ones that we've consummated over the last year—have been done with union approval.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

When you announced the price freeze on some of the products, coincidentally on the same day that the House was going to come to a vote on a motion—unanimously, I might add, so it was supported by all parties—your competitor, Metro, was quick to point out that it's already an industry standard to freeze prices at that time of year.

I guess my question to you is this: How did the industry collectively decide on this standard? What kinds of discussions do you have with your competitors on this, if Metro is already identifying that it's a standard? It seemed to me that your company announced it as something out of the generosity of its heart to address the tough times. What do you have in response to Metro's statement?

[Jodat Hussain]

My understanding is that Metro subsequently clarified those comments. I know they're appearing before the committee, so you should ask them.

It is not a practice. Grocery prices do not freeze between October and January. I'll give you a very simple data point: I don't think inflation has ever paused from October to December. In fact, you can see the CPI prints going many years back, and prices do not pause during this time.

In fact, Dr. Charlebois is here. He's a learned scholar. He can give a perspective on it, but it is not an industry practice to freeze prices at this time.