Opinion: Minimum wage hikes serving up uncertainty in food industry

Opinion: Minimum wage hikes serving up uncertainty in food industry

This is turning into a very challenging year for the Canadian food industry.

Recent Statistics Canada numbers indicate that grocers are in trouble. Food inflation is above two per cent for the first time since April 2016. This is typically good news for grocers, increasing their margins. But given major headwinds affecting the industry, grocers need to get even more creative to reassure investors.

Loblaw Companies Ltd. has reason to be particularly worried, having just posted underwhelming fourth-quarter results. Food retail sales dropped by 1.2 per cent and total revenues slipped by 0.9 per cent.

Despite strong sales at subsidiary Shoppers Drug Mart, Loblaw executives indicated that reforms affecting the price of generic drugs will impact profits.

But higher wages seem to be the big worry for the company, as provincial governments nudge toward $15-an-hour minimum wages. And StatsCan numbers may suggest where things are headed with minimum wage increases.

Ontario minimum wage hikes likely pushed menu prices higher in January, especially in fast food, where most of the income earners are paid minimum wage. And this is likely just the beginning. After a 22 per cent hike on Jan. 1, Ontario’s minimum wage is due to increase again to $15 an hour on Jan. 1, 2019.

Alberta will join the $15-an-hour club in October and British Columbia intends to pass the $15 mark in 2021. Other provinces, like Quebec and Nova Scotia, are thinking about following suit. The $15 campaign will not go away any time soon.

Obviously, most of us agree that people should earn a decent living. The challenge with Ontario, though, is how quickly wage hikes are being implemented. A 32 per cent increase in 12 months is simply irresponsible.

Restaurants – many of them family-owned – will have difficulty coping.

The grocery business is also being affected by higher minimum wages but indicators are subtler. Here’s one example: The price of tomatoes, one of the most popular produce items, jumped by more than 30 per cent in a month. This was likely because of minimum wage increases, since it’s unusual for the price of any fruit or vegetable to increase by even four per cent in a single winter month (particularly when the value of the Canadian dollar remains relatively stable against its U.S. counterpart, as it has).

For Loblaw, the Brampton, Ont.-based retail giant, it’s a godsend to see food inflation rise again. It means it can tweak certain price points and increase margins without most people noticing. But the company will need to get very creative. Store traffic is an ongoing issue, so converting to online activity will be critical, especially with what’s on the horizon.

Amazon continues to create havoc in the grocery landscape. Bloomberg just reported that two grocers, Winn-Dixie parent Bi-Lo and Tops Friendly Market, could declare bankruptcy this month. This is likely due to the ominous shakedown in the industry caused by Amazon and its recent acquisition of Whole Foods.

This is only the beginning. Amazon is slowly capturing market share in groceries, destroying well-established players one by one, as it did in other sectors like books.

Loblaw is realistically concerned that Amazon will make its way into Canada.

But there’s still hope. Higher menu prices may slow down the food service sector’s string of successes in recent years. Food and labour are a restaurant’s highest expenses, creating an opportunity for grocers to commit more thoroughly to both ready-to-eat and ready-to-cook spaces. This could be Loblaw’s next move, but they clearly need to think differently about how to grow the business.

Interestingly, Loblaw made no mention of its $25 gift certificate campaign while posting its fourth-quarter results. The gift cards were launched because of its self-confessed involvement in the bread price-fixing scheme in December.

Nonetheless, StatsCan numbers confirm what many suspected: bread prices are dropping across the country. BMO stated earlier this year that bread prices were down 2.5 per cent since December, after Loblaw disclosed its involvement in the scheme. According to StatsCan, bread prices dropped 1.7 per cent in January alone. In fact, most bakery products seem cheaper than they were a month ago.

This may be a sign that grocers are trying to make amends with the public, since the story has garnered so much attention. Only time will tell if the aggressive discounting we’ve seen in stores will continue.

But we do know that the Canadian food industry is facing increasing pressure on several fronts.

Troy media columnist Sylvain Charlebois is dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

A candlelight vigil will be held in Red Deer on Thursday to honour the 350-plus people killed in the Easter bombing attack in Sri Lanka. Contributed photo
Candlelight vigil planned for deaths linked to Olymel COVID-19 outbreak

A candlelight vigil is being planned for those who died due to… Continue reading

Traffic will be delayed on 40th Avenue and 19th Street until the end of February. (Advocate file photo).
Traffic delays expected downtown this weekend

Red Deer drivers will be delayed in the downtown area of the… Continue reading

COVID
Red Deer down to 313 active cases of COVID-19

Alberta reports an additional 411 COVID-19 cases

Friday, Alberta Health Minister Tyler Shandro announced the province’s plan to reduce surgical wait times over the next two years. (Photo by Paul Taillon/Office of the Premier)
Alberta provides more funding to reduce surgery wait times

The province is working to provide better access to surgeries over the… Continue reading

Bryson, six, and Mara, eight, play with puppies from Dogs With Wings Saturday. (Photo by Sean McIntosh/Advocate staff)
WATCH: Dogs With Wings introduces Red Deer program

A program that trains puppies to be certified service, autism, facility and… Continue reading

FILE - In this May 3, 2020 file photo, Veneuzuelan security forces guard the shore and a boat in which authorities claim a group of armed men landed in the port city of La Guaira, Venezuela, calling it an armed maritime incursion from neighboring Colombia. Yacsy vÅlvarez, a woman who was charged in Colombia with helping organize the attempted armed invasion to overthrow Venezuela‚Äôs socialist government, says Colombian authorities were aware of the plotters‚Äô movements and did nothing to stop them and that she‚Äôs being made a scapegoat for the sins of others who abandoned the would be rebels. (AP Photo/Matias Delacroix, File)
3 Venezuelans plead guilty for aiding anti-Maduro plot

3 Venezuelans plead guilty for aiding anti-Maduro plot

Anti-coup protesters maintain their position behind a barricade despite smoke from tear gas in San Chaung township in Yangon, Myanmar Friday, Mar. 5, 2021. Demonstrators defy growing violence by security forces and stage more anti-coup protests ahead of a special U.N. Security Council meeting on the country’s political crisis. (AP Photo)
Protesters defy Myanmar security forces as UN action urged

Protesters defy Myanmar security forces as UN action urged

Prime Minister Justin Trudeau holds a press conference in Ottawa Friday, March 5, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Trudeau holds firm on premiers’ health-care funding demands, COVID-19 aid comes first

Trudeau holds firm on premiers’ health-care funding demands, COVID-19 aid comes first

A vial of the Johnson & Johnson COVID-19 vaccine is displayed at South Shore University Hospital, Wednesday, March 3, 2021 in Bay Shore, N.Y. Janssen Pharmaceuticals is a division of Johnson & Johnson. THE CANADIAN PRESS/AP/Mark Lennihan
Provinces revise vaccination timelines as Johnson & Johnson’s COVID vaccine approved

Provinces revise vaccination timelines as Johnson & Johnson’s COVID vaccine approved

FILE - In this June 11, 2016 file photo, Britain's Queen Elizabeth II waves as she watches the flypast, with Prince Philip, to right, Prince William, centre, with his son Prince George, front, Kate, Duchess of Cambridge holding Princess Charlotte, centre left, with The Prince of Wales standing with The Duchess of Cornwall, and Princess Anne, fourth left, on the balcony during the Trooping The Colour parade at Buckingham Palace, in London. The timing couldn’t be worse for Harry and Meghan. The Duke and Duchess of Sussex will finally get the chance to tell the story behind their departure from royal duties directly to the public on Sunday, March 7, 2021 when their two-hour interview with Oprah Winfrey is broadcast. (AP Photo/Tim Ireland, File)
No winners: UK waits for Harry, Meghan’s take on royal split

No winners: UK waits for Harry, Meghan’s take on royal split

Animated character Raya, voiced by Kelly Marie Tran, left, appears with Sisu the dragon in a scene from "Raya and the Last Dragon." THE CANADIAN PRESS/Disney+ via AP
Canadian animator on adding cultural authenticity to ‘Raya and the Last Dragon’

Canadian animator on adding cultural authenticity to ‘Raya and the Last Dragon’

Members of the National Guard, Philip Fane, center, and Megan Puckett, right, help a motorist register at a COVID-19 vaccination site in Long Beach, Calif., Friday, March 5, 2021. More than 27 million Americans fully vaccinated against the coronavirus will have to keep waiting for guidance from U.S. health officials for what they should and shouldn't do. The Biden administration said Friday it's focused on getting the guidance right and accommodating emerging science. (AP Photo/Jae C. Hong)
California to let Major League Baseball, Disneyland reopen

California to let Major League Baseball, Disneyland reopen

Visitors wearing face masks leave the Alamo, Wednesday, March 3, 2021, in San Antonio. Gov. Greg Abbott says Texas is lifting a mask mandate and lifting business capacity limits next week. (AP Photo/Eric Gay)
Study finds mask mandates, dining out influence virus spread

Study finds mask mandates, dining out influence virus spread

Most Read