You’ll be paying more at the grocery store soon, supermarket CEOs warn

The CEOs of three of Canada’s major grocery chains doubled down on their expectation that food prices will soon rise at their stores.

Recent cost pressures on the industry, including rising minimum wages in some provinces, increased fuel and transportation costs and an ongoing trade war with the U.S., will soon result in some price inflation, said the chief executives of Metro Inc., Loblaw Companies Ltd. and Empire Co. Tuesday at Scotiabank’s back-to-school conference in Toronto.

Metro CEO Eric La Fleche said consumers should eventually see a return to more normal inflation levels.

“Exactly when and how — it’s all about competitive dynamics. Everybody is competitive. Nobody wants to lose any share. So, let’s see how things play out,” he said.

Metro is starting to see some price inflation already, La Fleche said.

He explained that the cost pressures have been building over the past year, beginning with Ontario’s minimum wage hike from $11.60 to $14 an hour on Jan. 1, followed by rising fuel and transportation costs.

Then came the Canadian government’s retaliatory tariffs on July 1 on a wide range of American products, including coffee, maple syrup, salad dressing and other foods.

“Now, we’re having a — what I would describe it as — a tsunami of tariff-related request for cost increases from our supplier partners,” said Michael Medline, Empire’s CEO.

The company, which is the parent to grocery chain Sobeys Inc., held off on raising prices for some time, he said, but is now reviewing these tariff-related costs.

Empire will pass the extra costs on to consumers where it makes sense in the market, he said, adding it will be careful not to give away any market share.

“We don’t like to pass on cost, but there’s no way you can avoid it with the inflationary pressures that we are now seeing.”

Price increases are likely to be moderate in a historical sense, said Loblaw CEO Galen Weston.

He predicted food inflation of one- to 1.5-per cent, which he said is in the normal range as opposed to higher range in the five to six per cent level.

“We don’t yet see it moving into the mid-single digit levels… We don’t think it is likely to do that.”

The chief executives also outlined their respective plans to grow their e-commerce business, specifically home delivery. Canada’s grocers have been slow to offer delivery, but ramped up their efforts after Amazon acquired Whole Foods Market last year.

Metro already offers home delivery from seven stores in Quebec, which serves about 60 per cent of the province’s population, said La Fleche.

It will start offering the service in Ontario in 2019, he said, but did not provide details on specific locations.

The company relies on its existing assets to fulfil orders rather than partnering with a third-party like its competitors have chosen to do.

“We’re going to e-commerce with a prudent approach,” said La Fleche, adding the company is scaling up and the company may consider using a dedicated facility if it reaches a certain level — but it’s not there yet.

Empire, on the other hand, decided to partner with British firm Ocado to build a fulfillment centre in the Greater Toronto Area that will be fully operational by the spring of 2020. The centre will house Ocado’s signature robotics that can fulfil customer orders within minutes.

Empire offers home delivery in Quebec and learned that their solution there is not scalable, Medline said, adding the company is excited that Ocado’s solution eliminates some logistical issues and is profitable.

Loblaw also partnered with another company to offer home delivery, opting for California-based Instacart, but chose to do so in a quicker fashion. Customers in 17 cities can now use the Instacart app to order groceries for delivery from Loblaw.

“Our view today is that rapid expansion and customer acquisition is the second most important thing to do in the first innings of the e-commerce online grocery world,” Weston said.

A&W sold out of its new plant-based burger all across Canada in a matter of weeks

After more than 60 years of dishing out beef burgers, a Canadian fast-food chain has found new success in an unexpected product: a patty made from peas, mung beans and beets.

A&W Food Services of Canada Inc., the country’s second-largest hamburger chain, is tapping into growing demand for plant-based protein by becoming the first national burger chain to offer California-based Beyond Meat’s burger on its menu in July.

The Beyond Meat burgers sold out nationwide in a matter of weeks.

The Beyond Meat burgers sold out nationwide in a matter of weeks, said Chief Executive Officer Susan Senecal. The veggie burgers will be back in stock across Canada Oct. 1.

“It became even more popular than we had expected,” Senecal said in a telephone interview from Vancouver. “Plant-based protein has gained in popularity and it really is something people are very interested in.”

A&W is the latest meat-focused company that sees growing opportunities in plants as some consumers turn away from traditional protein amid concerns about environmental impact, animal welfare and maintaining a healthy diet. Tyson Foods Inc., the largest U.S. meat producer, in 2016 acquired 5 per cent of Beyond Meat, which has also gotten the backing of billionaire investor Bill Gates. Maple Leaf Foods Inc., Canada’s largest packaged meat company, is now stocking shelves with plant-based imitators after acquiring vegetarian producer Lightlife Foods.

A&W’s Beyond Meat burger builds on the company’s strategy to focus on better ingredients, Laurentian Bank Securities analyst Elizabeth Johnston said in an email. While these new products have generally been positive for organic growth, it’s too early to quantify the potential impact of the burger, she said. The A&W Revenue Royalties Income Fund, which invests the securities of A&W Food Services, is up 7.3 per cent this year and hit a 15-month high in August.

A sign on the door of a downtown Toronto A&W restaurant explaining they have no more Beyond Meat burgers.

Five years ago, A&W started to home in on growing consumer demand for more information and transparency about their food, said Senecal, noting the chain now offers beef raised without any added hormones or steroids and chicken raised without antibiotics. The plant-based burger builds on consumer desire for more natural foods and the company is constantly monitoring how the trend develops, she said.

Bloomberg.com

Mall retailers want their rent cut after Sears Canada exit

Two companies want an Ontario court to lift a stay preventing them from exercising their co-tenancy rights at malls where failed retailer Sears Canada left a vacancy.

Gap Inc., which owns Gap, Banana Republic and Old Navy, and the Children’s Place filed notices of motion at the Ontario Superior Court of Justice earlier this month.

The documents say a co-tenancy right in a lease can give a retailer the right to reduce or restructure its rent if certain specified anchor tenants vacate the mall or reduce their square footage below a specific threshold.

In some cases, it can allow a company to terminate its lease without any penalties.

Sears Canada closed its last remaining stores Jan. 14 of this year after spending much of 2017 attempting to reinvent itself and bring in traffic.

The motions are scheduled to be heard in October.

DavidsTea reports $10 million net loss in first results since boardroom shakeup

MONTREAL — DavidsTea has reported a $10 million net loss in the first results since founder Herschel Segal took back control of the company’s board.

The Montreal-based retailer said Thursday the results for the quarter that ended Aug. 4 works out to a loss of 39 cents per share, compared with a $5.6 million, or 22 cent per share, loss for the same quarter last year.

Comparable sales were down 14.8 per cent after its product offering “did not resonate with customers,” it was less promotional, and it had less product available for its semi-annual sale, the company said.

Segal, whose Rainy Day Investments owns 46 per cent of DavidsTea shares, clashed with other significant shareholders earlier this year on company leadership, board composition, and the direction of the company.

His slate of directors won by 54 per cent in a vote at its June annual meeting, prompting CEO Joel Silver to resign after the results were announced and Segal said he would step into the role of interim CEO.

Since June, the company has shuffled head office to put more senior leaders in marketing, buying and product development to help turn the company around, said Segal on an earnings call Thursday.

“We have begun collaborative work to reverse the tide of recent negative quarterly results.”

In August, the company said it would start selling its products in 450 Loblaws stores as it looks to push further into the tea bag market in addition to its traditional loose-leaf sales.

Segal said a search for a replacement CEO is ongoing, as is a search for a replacement for its CFO Howard Tafler, who will leave at the end of the month.

At the end of July, shareholders representing 12.8 per cent of the company, filed suit in Quebec Superior Court against Segal and Rainy Day Investments, seeking to have him removed as executive chairman of the board and a new slate of directors be elected.

Dollarama profit misses estimates on lower sales of Canada Day items

Canadian discount store chain Dollarama Inc missed analysts’ estimates for second-quarter profit and comparable-store sales on Thursday, hit by lower sales during the Canada Day weekend.

Same-store sales rose 2.6 per cent in the reported quarter while analysts were expecting a 5.26 per cent rise, according to Thomson Reuters I/B/E/S.

“Overall sales results were also impacted by lower sales of Canada Day seasonal and related souvenir products,” the company said.

The Montreal-based company’s net income rose to $141.8 million (US$109.05 million), or 43 cents per share, in the second quarter ended July 29, from $131.8 million, or 38 cents per share, a year earlier.

Excluding items, the company earned 43 cents per share. Sales rose 6.9 per cent to $868.5 million.

Analysts on average had expected the company to earn 44 cents per share on revenue of $887.8 million.

© Thomson Reuters 2018

Walmart teams up with Instacart to bring same-day grocery delivery to Canada

Walmart Inc said on Thursday it has teamed up with U.S. home delivery company Instacart to bring some Canadian customers same-day grocery deliveries, raising the stakes in the country’s hotly contested retail space.

Walmart’s Canada unit said the service, which is part of a pilot program with Instacart, will be available in the Greater Toronto Area from Sept. 13, while customers in Winnipeg can start availing the service later this month.

Like in the United States, retailers in Canada have been facing stiff competition from Amazon.com Inc, pushing a lot of them to invest in online sales and home delivery.

Last November, Canadian grocery and pharmacy chain Loblaw Cos Ltd teamed up with Instacart to offer home delivery service in Toronto and Vancouver.

Startup Instacart counts Whole Foods, Costco, Target and more than 100 other retailers as customers for grocery deliveries, and charges a delivery fee for its service.

© Thomson Reuters 2018

Hudson’s Bay Company CEO vows changes at underperforming Lord & Taylor, Saks OFF 5th as loss widens

TORONTO — Canadian department store operator Hudson’s Bay Co said on Wednesday its second-quarter loss widened due to lower sales at its Lord & Taylor and Saks OFF 5th divisions.

Chief Executive Officer Helena Foulkes said the company, which announced a joint venture in Europe with Austrian rival Signa Holding on Tuesday, will focus on turning around the two underperforming divisions.

“We’ve made some poor decisions over the last few years that have hurt (the Saks OFF 5th brand’s) profitability,” Foulkes, who became chief executive in February, told Reuters. “But this is a business that fundamentally can be successful.”

Lord & Taylor was more challenging and a turnaround would take longer, she said, adding that the company was open to changes, including smaller stores.

Hudson’s Bay reported a net loss of $147 million, or 62 cents a share, in its North American operations for the quarter ended Aug. 4. That compared with a loss of $100 million, or 55 cents, a year earlier.

Sluggish sales have dogged the company as Amazon.com Inc and other online retailers lure consumers away from department stores. In all but one of the past 10 quarters, HBC has posted losses.

Shares have fallen 6.2 per cent this year, compared with a 0.7 per cent decline in the benchmark Toronto stock index.

Comparable sales in HBC’s department store group, which includes its Hudson’s Bay and Lord & Taylor banners, fell 3.8 per cent in the quarter from a year earlier, while sales at Saks OFF 5th, which offers discounted designer goods, dropped 7.6 per cent.

The company’s luxury Saks Fifth Avenue brand’s 6.7 per cent increase in sales couldn’t offset the declines in its other businesses.

Including its European business, Hudson’s Bay reported a net loss of $264 million, widening from $201 million a year ago, and deeper than the loss of $173 million that analysts expected, according to Thomson Reuters I/B/E/S.
Gross margins improved 240 basis points, lifting adjusted earnings before interest, taxes, depreciation and amortization, to $33 million from $3 million a year ago, the company said.

The European joint venture will merge HBC’s Galeria Kaufhof chain with Signa’s Karstadt brand to form the region’s third-biggest department store chain. The companies said on Tuesday that their combined regional sales in 2017 were 5.4 billion euros (US$6.25 billion).

That venture, which will include both HBC’s European retail operations and real estate assets, was the latest in the Toronto-based company’s efforts to boost its performance.

In June, the company said it would sell its unprofitable online banner Gilt, and close up to 10 Lord & Taylor stores including its Manhattan flagship, whose building it agreed to sell to Softbank-backed WeWork Cos. last year.

© Thomson Reuters 2018

Canada Goose to spend $15.8 million on new Winnipeg factory, create 700 jobs

WINNIPEG — The Manitoba government says it will spend up to $1.48 million to help luxury jacket maker Canada Goose expand its Winnipeg manufacturing operations.

Premier Brian Pallister says the $15.8 million expansion will create about 700 jobs.

He says the province’s contribution will be spent to help train sewing machine operators over three years.

The new facility will be the company’s third factory in Winnipeg.

Dani Reiss, president and CEO of Canada Goose Holdings Inc., says the company currently employs about 3,000 people around the world, who make products that are sold in more than 38 countries.

He says Canada Goose wants to keep production in Canada.

“Made in Canada isn’t a slogan for Canada Goose — our commitment to growing production capacity in Canada is stronger than ever,” Reiss said Tuesday in a release.

“We are proud of our role in creating manufacturing jobs in Canada and to be doing it in Winnipeg — a city we are privileged to call home.”

Earlier this year Canada Goose announced it would open new stores in Short Hills, N.J., Montreal and Vancouver this fall as part of its retail expansion plan.