Increasing Ontario Minimum Wage May Affect Profits for Canadian Grocery Chains

Loblaw Companies, Inc., has warned that increases to the Ontario minimum wage, as well as minimum wage hikes in Alberta, may affect its ability to generate profits and will force it to find different ways to cut costs. The parent company of Shoppers Drug Mart, No Frills, Loblaws, and other grocery chains projects that Alberta and Ontario minimum wage increases will increase its labour costs by roughly CAD 190 million next year.


On July 21, the Ontario government said that it will progress with legislation to increase Ontario minimum wage to CAD 14 per hour as of January 1, 2018, and CAD 15 per hour as of January 1, 2019. The Ontario minimum wage now stands at CAD 11.40 per hour.


Why will the Ontario minimum wage increase?

The government has said that this wage hike is intended to provide a better quality of living and improved buying power for individuals earning minimum wage in Ontario. In 2014, roughly 30% of citizens in Ontario were involved in ‘precarious work’, which generally refers to employment that offers minimal or no benefits (such as drug plans or pension plans) and pays minimum wage. Part-time work has grown to account for 20% of all employment in the province over the past 30 years.


Since most of the workers earning Ontario minimum wage or less than CAD 15 per hour are between the ages of 25-65, an increase to this wage will affect the economic status and buying power of a wide range of citizens. The Ontario government says that raising the Ontario minimum wage will be beneficial for business as well: “Studies show that a higher minimum wage results in less employee turnover, which increases business productivity. It also boosts the economy through the improved purchasing power of thousands of workers.”


Jobs may be at stake

Loblaw seems to disagree with the government’s position, suggesting that a higher Ontario minimum wage may actually negatively affect workers and lead to job cuts. Galen G. Weston, Loblaw chairman and CEO, suggested that the company may be forced to save money by “increasingly digitizing manual invoice jobs and rolling out more self-checkouts at its Shoppers Drug Mart locations.” This translates to a cut in employment, replacing the people laid off with the comparably inexpensive alternatives of self-checkouts and automation in order to keep rapidly increasing labour costs down. There’s also the possibility that consumers across the country will see an increase in grocery prices.


During a quarterly earnings conference call, Weston told analysts, “We are flagging a significant set of financial headwinds and the organization is mobilizing all of its resources to see whether or not it can close that gap. At this point, we don’t know the answer.”


In addition to Alberta and Ontario mimimum wage increases, Loblaws stores and other Loblaw subsidiaries may also face challenges from Amazon’s anticipated entry into the grocery market, as well as Quebec’s changes to generic drug prices.


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