Loblaw announced Monday that it would be freezing prices for 1,500 products sold under its No Name private label. But experts say the move is largely a PR tactic as Canadians and politicians accuse grocery giants of profiteering.
Retail expert Doug Stephens said he doubts the move was done out of altruism and notes that the profit margins on private label brands already tend to be "quite a bit higher" than national brands.
"This is an interesting move by Loblaws to actually encourage consumers over to its private label," he told CTV's Your Morning on Tuesday. "So while you could argue that this is a goodwill gesture on the part of the company toward Canadian consumers … it's also a brilliant marketing move to get consumers over to private label where, hopefully, they'll develop a new habit around those products and that bodes well for Loblaws in the long run."
The Loblaw No Name price freeze will be in effect until Jan. 31. Barry Millman, CEO of the Denbar Food Group in Cobourg, Ont., notes that the price freeze coincides with the "blackout period" between October and January, when suppliers like his company are prohibited from increasing the prices they charge to grocery stores.
"It's been practice for about 25 or 30 years now. All of the retailers are trying to stabilize their busy season, which is the fall, Christmas and the holiday seasons," he told CTVNews.ca in a phone interview Tuesday.
"During that blackout period, there's no real reason for (Loblaw) to increase prices," Millman added. "In my opinion, it's a public relations ploy and good on them if they can pull it off."
Even outside the blackout period, grocery suppliers typically have to wait up to three months in order to get price increases approved by retailers, he said, meaning that any increased costs have to be absorbed by the suppliers in the meantime.
"A lot of times, we'll sell at a loss during that period because our suppliers certainly don't give us any kind of time," he said.
Loblaw's price-freezing announcement also follows similar moves from grocery chains around the world. Carrefour, a French grocery chain with locations in more than 30 countries, announced in August it would be freezing prices on products from its store brand, as did U.K. grocery giant Tesco in September.
"For many months now we've seen grocers around the world, freezing prices, on many different continents. And I think it was really time for a Canadian grocer to move forward on this," Sylvain Charlebois, director of Dalhousie University's Agri-Food Analytics Lab, told CTV News on Monday.
Metro said in a statement to CTV News on Monday it was an "industry practice" to have a price freeze between November and February. However, Loblaw denied that the practice is standard and called it "unprecedented in Canada" in a statement to CTVNews.ca Tuesday morning.
Loblaw is technically right, Millman says. Although there is a blackout period preventing suppliers from increasing prices, he says there's nothing stopping grocery stores from increasing prices for consumers during this period.
GROCERY STORES ACCUSED OF 'GREEDFLATION'
Last month, Statistics Canada announced that the annual inflation rate had slowed to 7.0 per cent in August. However, this was largely driven by the falling price of gas, and grocery prices have risen 10.8 per cent since last year -- the fastest pace in over 40 years.
But as food prices have skyrocketed, so have the profits of Loblaw and other grocery store chains. In Q2 2022, Loblaw reported a profit of $387 million and its Q1 profits were 40 per cent higher than the previous year. Metro also saw its profits increase by 8.7 per cent in Q2 2022 to $275 million.
Stephens also pointed to a report from the Canadians for Tax Fairness released last spring, which found that corporate profits margins in Canada averaged 16 per cent in 2021, compared to nine per cent from 2002 to 2019. The report concluded that the increasing prices were the "key contributor to the jump in corporate profits."
"Clearly, if costs are going down, profits are going up, we can only assume that prices are driving a significant portion of that," he said.
The growing anger directed at grocery giants like Loblaw necessitated the move to freeze prices, Charlebois believes.
"It's an interesting call. I think it was needed for Loblaws," Charlebois told CTV News on Monday. "It was facing constant criticism. Almost four Canadians out of five believe that grocers are profiteering and so that was definitely a PR problem."
Parliamentarians have also taken notice. On Monday, an NDP motion calling on the federal government to investigate grocery chain profits received unanimous support. NDP Leader Jagmeet Singh sought to take some credit for Loblaw’s price-freezing announcement.
"Because of public pressure and our pressure to force grocery stores to start responding to the needs of people, we've seen a positive sign, Loblaws has now announced they're going to freeze the prices of their ‘No Name’ line of products," he told reporters on Monday.
But an analysis from Charlebois and his team last summer found that although the dollar values of grocery chain profits have gone up, the profit margins still remain at around two to four per cent.
"We actually over the summer our lab produced a 'greedflation' report looking at financial statements of grocery chains, looking into profiteering and we couldn't find any evidence of abuse at all," he said.
With files from CTV News' Rachel Aiello and Joyce Napier
