Inflation Anticipated: Sobeys

MARK HAMSTRA

STELLARTON, Nova Scotia — The media has been well out in front of looming commodity-cost inflation in Canada, retailer Sobeys here said in a recent earnings call with analysts.

“We haven't seen nearly the wave of cost increases coming our way yet,” said Bill McEwan, president and chief executive officer, Sobeys, which is part of publicly traded Empire Cos. “There is time-lag effect of some several months from the time that the commodity prices hit the marketplace and it becomes public, and how that trickles into cost of goods and then on to the retail side of the equation.”

He said the company has not yet seen a “material increase” in costs, year-over-year.

“We expect that to change,” he said. “Clearly, there is enough evidence that the commodity-price increases and the operating-cost increases that are associated with manufacturers transacting their business are going up, and they will expect that we will be confronted with cost increases.”

It remains to be seen whether the Canadian marketplace will tolerate comparable shelf-price increases, he said. McEwan described a highly competitive marketplace in food retailing during the recently ended fiscal third quarter, particularly in the discount sector in Ontario and Atlantic Canada.

Sobeys continued its expansion in that sector with the ongoing conversion of its Price Chopper format to the discount FreshCo banner. It has converted 45 stores through the first three quarters, and anticipates completing all planned conversions by this summer.

For the third quarter, which ended Jan. 29, Sobeys reported an increase in operating income of 0.9%, to $339.9 million (U.S.), while same-store sales fell 0.4% for the period. Sales were $3.95 billion, up 1.5% vs. year-ago levels. Despite the sharp price competition, Sobeys said its third-quarter gross margin percentage was up 34 basis points from a year ago due to “mix improvement, shrink reduction and vendor management initiatives.”

Fiscal year-to-date sales for the food retailing division were about $12 billion, also up 1.5%. Same-store sales for the 39-week period decreased 0.1%.

Sobeys' parent company, Empire Cos., which also operates a real estate business, posted a 0.8% decline in net income for the quarter, to $64.7 million, on a 1.3% gain in revenues, to about $4 billion.