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Rising inflation, labor problems stress retailers like Metro

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The vaccine rollout, easing of restrictions, and people returning to work led to increased store foot traffic yet decreased basket sizes.

With the resurgence of Covid cases during the holidays, foot traffic once again fluctuated, and food sales were down—but still higher than 2019.

Metro Inc. BB #:116082 expected this trend to continue at least through the first quarter of 2022, but normal times are returning again.

Of course, Metro isn’t alone in battling the rising costs, supply chain delays, and labor shortages that have dogged the entire grocery industry in Canada.

One of those costs, wages, recently climbed when Ontario raised its minimum wage to $15 an hour as of the first of the year.

Although Eric La Flèche, Metro’s CEO, says Metro can absorb the increase, it may put pressure on other retailers.

Certainly, all retailers are feeling the inflationary pressure. While the consumer price for vegetables was down 2.1 percent in Canada between October 2020 and September 2021, the cost of the average food basket has still been rising.

“For a conservative government like Ontario to [increase the minimum wage] is a signal of things to come,” says Sylvain Charlebois, senior director of Agri-Food Analytics Lab at Dalhousie University in Halifax, NS.

Inflation this year is projected to be between 5 and 7 percent, according to the 2022 Canada Food Price Report.

The 12th annual report is a joint project between the University of Guelph’s Arrell Food Institute (AFI) and Dalhousie University’s Agri-Food Analytics Lab, as well as the University of British Columbia and the University of Saskatchewan.

Issues driving inflation include supply chain disruptions, adverse weather-related effects, and increasing salaries.

“Households will be spending a larger portion of their incomes on food,” Charlebois says, and as a result, “consumers will become more frugal. They’ll be looking at prices, the cost to get food delivered, and meal kits.”

While demand shifted toward conventional formats during the pandemic, food inflation could fuel sales for discount grocers.

Such a shift could bode well for competitor Loblaw, as 60 percent of its business is reportedly in the discount category. The company is reformatting 17 of its most unprofitable stores to discount this year and closing 3 others.

The likes of Walmart and Costco may also be better able to weather inflationary pressures.

“Grocery is a low-margin business—it’s more price sensitive—so the pure-play grocer is more vulnerable to price increases and headwinds,” says Carol Spieckerman, president of Spieckerman Retail in Bentonville, AR.

“Walmart’s killer advantage is that grocery drives foot traffic, which drives impulse buying on higher margin products, which increases profits,” she explains. “If the grocery business is down, Walmart can still make it up somewhere else.”

This is an excerpt from the Canada Supplement to the March/April 2022 issue of Produce Blueprints Magazine. Click here to read the whole supplement.