Sobeys boss hits back at criticism of grocery store profits amid inflation

“Frankly, I’m sick of these armchair quarterbacks”

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The head of Canada’s second-largest grocery chain called suggestions that the country’s big grocers are using their market power to profit from inflation as “reckless” and “inflammatory,” and called the critics who make such lazy “armchair quarterback” claims who know little. on the food trade.

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Michael Medline, chief executive of Empire Co. Ltd., which operates 1,600 stores under the Sobeys, Safeway, FreshCo, IGA and Farm Boy banners, made unusually impassioned remarks at his company’s annual general meeting on Thursday. Formerly Empire based in Stellarton, Nova Scotia reported net profit of $187.5 million in its latest quarter, little change from a year earlier.

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“Quite frankly, I’m tired of these armchair quarterbacks who make little effort to understand even the basics of our business, but are comfortable sitting on the sidelines pontificating about how companies are reaping unreasonable profits on the back of inflation,” Medline told the assembled shareholders. at a movie theater in New Glasgow, N.S.

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“That is absolutely not true,” he continued. “These reckless and inflammatory attacks are meant to divide us and stand in stark contrast to the collaboration and problem-solving we have experienced in the darkest times of the pandemic.”

Medline’s remarks represent the most aggressive attempt ever by anyone in the grocery industry to fend off a summer of bad press that has stoked resentment among customers and threatens to draw the attention of politicians who have demonstrated a new interest in competition policy.

Canada’s big grocers have faced a backlash in recent months for posting profit gains as shoppers faced the highest grocery inflation since the 1980s. Empire and its main rivals in the industry – Loblaw Companies Ltd. and Metro Inc. – all dismissed the criticisms as unsubstantiated and misguided. That didn’t stop the swirling accusations of corporate greed from turning into a PR headache for the industry, which had only just gotten rid of the Hero Pay Scandal of 2020 – not to mention an ongoing federal investigation into an alleged scheme to fix the price of bread and a long government campaign to prevent grocers from intimidating their suppliers.

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David Macdonald, economist at the Canadian Center for Policy Alternatives, said writing that excess corporate profits and higher margins in the food sector were driving up inflation. A Toronto Star Investigation published in July came to a similar conclusion. And last month, the Financial Post worked with accounting and auditing experts to analyze the financial statements of the three major grocers and discovered a more complicated picture than the one drawn by Macdonald and the Star.

The scrutiny was fueled by “a handful of politicians, media sources and think tanks — not because we are struggling, but for being too successful in this difficult environment of high inflation,” Medline told shareholders. “I guess that makes easy headlines and ignores what’s really driving our success,” he added. “I refuse to apologize for our success.”

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Empire previously said its margin and earnings were improving, thanks in part to its three-year Project Horizon strategy to grow its FreshCo and Farm Boy brands, while using e-commerce and analytics to drive earnings growth.

In an earnings update ahead of the annual meeting, Empire said profits actually fell slightly in the first quarter, despite an increase in sales.

Sales for the quarter ended August 6 increased by 4.1% compared to the same period last year. The jump came from higher food and fuel sales, which have been impacted by soaring commodity prices this year, as well as FreshCo’s expansion into Western Canada, the company said.

Discount stores such as FreshCo have diverted sales from more conventional grocers this year as more shoppers seek bargains as household food bills rise. In his last consumer price index last month, Statistics Canada found that grocery store prices rose 9.9% year over year in July.

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But Empire’s profit was $187.5 million, down $1 million or 0.5% from a year ago. Earnings per share were 71 cents in the quarter, lower than forecast 74 cents, but one cent higher than a year earlier. RBC analyst Irene Nattel said the results were “strong”, despite Empire failing to meet EPS expectations.

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The company posted a slightly lower margin in the quarter, which it attributed in part to higher supply chain costs. Empire’s gross margin – a measure of the profit the chain left after factoring in the cost of buying merchandise and running stores – fell to 24.9% from 25.1% last year . The company said its gross margin would be 63 basis points higher than a year ago were it not for the impact of fuel sales.

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