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Food prices could take bite out of profits: Loblaw

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TORONTO -- Shoppers seem able to stomach a slight increase in food prices for now, but a larger jump -- say five per cent -- would cause "severe indigestion" and could hit Loblaw's bottom line, says the food store giant's CEO.

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Hey there, time traveller!
This article was published 05/05/2011 (4121 days ago), so information in it may no longer be current.

TORONTO — Shoppers seem able to stomach a slight increase in food prices for now, but a larger jump — say five per cent — would cause “severe indigestion” and could hit Loblaw’s bottom line, says the food store giant’s CEO.

Allan Leighton told analysts that the company’s internal inflation gauge increased slightly in the first quarter of 2011, compared to falling prices during the same quarter of 2010.

“(It was) a quarter in a wonky market, with little sales volume, plenty of aggressive commercial activity and some modest and pesky inflation,” Leighton said on a conference call with analysts to discuss Loblaw’s (TSX:L) first-quarter results.

“Where goes inflation is the million-dollar question. Three per cent on food is digestible, five per cent or more would cause severe indigestion.”

Rising world prices of everything from meat and flour to sugar and gasoline have put upward pressure on food processors, grocers and most companies operating in the food business. But consumers are resisting price increases on store shelves so grocers are finding it hard to recoup their higher costs.

Loblaw, along with its rival big Canadian grocers, Metro (TSX:MRU.A) and Sobeys parent Empire Co. Ltd. (TSX:EMP.A), had complained about the impact of depressed food prices on its sales. But that changed this quarter, as Loblaw finally saw commodity price inflation work its way through the supply chain to its grocery baskets.

While Loblaw’s inflation calculation was lower than the average 2.5 per cent inflation rate reported by Statistics Canada, it was the first time in several quarters that Canada’s biggest grocer reported a jump — and that appears to have had an impact on Canadians’ shopping habits during the quarter.

The company’s first-quarter profits rose nearly 23 per cent to $162 million from $132 million a year earlier, even though its sales fell. Revenues were down slightly to $6.87 billion from $6.91 billion, due to lower retail sales and revenue in its President’s Choice financial services division.

The Toronto-based company said Wednesday its earnings were equal to 58 cents per share, higher than the 48 cents per share reported last year.

— The Canadian Press

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