Agriculture Committee on Feb. 6th, 2023

[Paul Cope]

One of the strategies we have is that we're trying to bring as many of our private brand products through promotions as we possibly can, because that has some of the best value. You have to recognize as well that you have to go across all the different types of categories to be able to help those folks. It could be tinned goods. It could be bathroom tissue. It could be dairy products. They're all different, and you have to undertake a strategy to provide value that crosses over all your fresh departments.

You have to engage your entire store in helping the folks who are having a tough time to engage in saving money in your store. One of our biggest strategies, as I said, is to heighten the awareness around private label brands.

[Rechie Valdez, Liberal, Mississauga—Streetsville, ON]

Thank you.

I want to give a specific example. The CDC permitted an increase of 2.2% in the farm gate price of milk for 2023 to adjust for the increases in everything. With these increases at the farm level, do you have an estimate in your grocery stores in terms of what you'd sell your products for in 2023?

[François Thibault]

I'm sorry. I didn't hear the first part of your statement.

[Rechie Valdez, Liberal, Mississauga—Streetsville, ON]

Since the increase has gone up on the farms, have you estimated what the impact is like in your grocery stores in 2023?

[François Thibault]

No. It's very difficult to predict what the price will be on fresh products. It fluctuates on a daily and a weekly basis. As I said, we do have a lot of price increase requests on the centre of the store. That has a backlog, which we're dealing with as we speak, but it's very difficult to predict what the costs will be on fresh products.

All I can tell you is that 50% or more of our fresh product is sold on promotion, so we try to make the best deals available to Canadians every week through several promotions on fresh. We know that people are looking for quality fresh, whether it's produce or meat. As I said, 50% or more of our fresh products are sold on promotion.

[Rechie Valdez, Liberal, Mississauga—Streetsville, ON]

Thank you.

Mr. Cope, do you have any final comments on that?

[Paul Cope]

If I can, I'll focus on fresh. As my colleague said, there have been tremendous amounts of price instability in fresh products no matter where they're coming from, whether they're coming from Canada or the United States. You have that volatility, but you have to charge a reasonable price for folks. We don't increase our margin on it. The cost goes up, so the price may go up, but it's not that the total margin we're charging is any higher. There's a reasonable amount of money that you can charge folks, and we're very conscious of that.

[Rechie Valdez, Liberal, Mississauga—Streetsville, ON]

Mr. Sands, really quickly, in your opening statement, you mentioned a few quotes. You also did a podcast on the double-digit increase, or how the prices are being passed down to retailers.

Can you share what independent grocers are doing in terms of passing the buck onto retailers?

[Gary Sands]

I assume that you mean passing the buck to consumers, or...?

[Rechie Valdez, Liberal, Mississauga—Streetsville, ON]

Yes.

[Gary Sands]

The independent grocer is on a margin of about 2%. We don't have a level playing field in this country for independent grocers. We're just trying to stay on the playing field. We're doing our best to do all of the things that my other colleagues from Metro and Save-On mentioned.

I'll give you an example. You touched on the price of milk. This is where it can get a little misleading to consumers such as yourself. I don't mean that in a disrespectful manner.

The CDC increased the price of milk by 2.2%. The processors also tacked on their increases. I'm sure it's perfectly justified. I'm not vilifying them at all. However, they tacked an additional increase onto that. I know that recently a couple of companies increased their prices to the retailer by an additional 4% to 6%. People walking into the grocery store, like you, think that the price of milk should only have gone up by 2.2%. Well, that's not what the retailer paid. The retailer paid more to the processor to put that product on the shelf.

[The Chair, Liberal, Kody Blois]

We'll have to keep it at that.

Thank you, Ms. Valdez and Mr. Sands.

Mr. Perron, you have the floor for six minutes.

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

Thank you, Mr. Chair.

I'd like to thank all the witnesses for being with us.

Mr. Thibault, in your opening remarks, you stated that you have not increased your profit margins and that you even absorb part of the cost increases.

How do you explain the fact that grocery stores' profits seem to be going up?

[François Thibault]

Our revenue has certainly increased due to inflation, but for the same reasons, our expenses have as well. However, the margin has remained stable. In fact, for Metro, the food margin is down because we haven't been able to pass on all the cost increases to consumers, and it's been offset by a higher margin in the pharmacy business. That's what's kept the gross margin relatively stable compared to the last few years, ranging from 19.9% to 20% per year. That's what I meant when I said we're absorbing some of the costs.

I mentioned gross margin, but we're also facing an increase in our operating expenses. I'm thinking of transportation, maintenance, supplies and so forth, not to mention depreciation, financial charges and taxes. As I said earlier, and others have as well, our net margin is very slim.

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

Ms. Rood said earlier that 44% of growers are selling at a loss. That's what I'm hearing from a number of producers as well. They depend on price fluctuations and they really have no choice.

You talked about the criticism being heaped on the food industry. It hurt your feelings, because basically you say you want to protect consumers. However, if the prices of products sold in grocery stores have gone up a lot and the producer isn't necessarily making more money than before, what's happening between the two of them? Where's the money going?

[François Thibault]

There are a number of stakeholders in the food supply chain. I can tell you about my experience, but I can't speak to the reality that 44% of growers experience.

What I can tell you is that when we go to local suppliers, we do so through a web-based transactional platform. Suppliers post the prices at which they are willing to sell their products and the quantities they can offer. We don't charge a loss leader. We take the price offered. I can imagine what they are going through, though. It's hard for everybody.

I look forward to getting back to an inflationary environment where the normal rate is 2% or 3%. I find that 10% and over isn't good for anyone, not for the consumer and not for us. I'm very anxious to get back to a normal environment.

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

I think we would all like to see that.

You brought up several things. When you say that you go to local suppliers, how would you define “local”?

I've often heard small or regional producers complain that they don't have access to grocery stores that are nearby.

Can you explain what you mean by “local product”?

[François Thibault]

It ranges from products purchased from small growers to those purchased from producers who are quite large. We try to do business with the full range of producers, and the number is growing every year. We've even made it a priority in our corporate responsibility plan to buy more from local growers.

It's important to us. It's what customers want; they want quality products. Also, because the distance is much shorter, that cuts down on transportation costs. Everybody wins. We want to make more room for local producers in our stores.

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

Thank you.

You claim you don't impose prices, that you go through a transactional site where suppliers post their prices. However, the growers tell us that they are being charged fees unilaterally. This isn't coming from me, it's what I've heard. I'm telling you because earlier you said that fees were negotiated and transparent. Why do you perceive it differently than they do?

What the growers are telling me is they have no choice, they have to pay those fees to do business with the grocers.

[François Thibault]

I can't speak for anyone else, I can only tell you what we do. We have a good relationship with our suppliers, including the local suppliers. We want fees to be negotiated transparently. As I said, we want to make more room for local suppliers in our stores.

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

If fees are negotiated transparently with suppliers, does that mean that different suppliers could pay different fees for the same transaction?

[François Thibault]

You need to consider all the factors that determine purchase prices. I can't comment on each supplier's situation, because we negotiate with each supplier individually.

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

All right.

I've also been told many times that there is some opacity in the financial statements of grocers in general, who aggregate several revenue sources. You yourself explained to me earlier that you had used the pharmacy business margin to offset a decrease in the food business margin.

Don't you think that the industry would benefit from more transparent reporting methods? That way, perhaps that negative perception you mentioned earlier wouldn't be so pronounced.

[François Thibault]

We report our results in accordance with current accounting standards, based on what we call a retail operating segment. There are many similarities between the two divisions. In our results, we report comparable sales by division, both food and pharmacy. We even break down comparable pharmacy sales into prescription and commercial sales. In addition, we qualify the results.

We report our results by retail operating segment and in accordance with accounting standards.

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

You talked about labour costs. I'm told that the wages in grocery stores are not very high.

Have your labour costs gone up a lot in the past year?