As food prices rise, many are quick to accuse grocers of making unfair profits and taking advantage of consumers.
The concept of “greedflation” has emerged as one of the most talked about issues. With food inflation in Canada at 10.3%, his highest in 41 years, consumers won’t calm down anytime soon.
Finding out if a grocery store is raising prices to make a profit isn’t so easy. If greed exists in our grocery sector, how do we measure it?
Well, our lab tried.
A recent report used publicly available data to estimate gross margins (revenue minus cost of revenue) for each of Canada’s three largest grocers: Empire/Sobeys, Metro, and Loblaws. I checked. We then calculated the “best” and “average” performance of each for the last five years.
We then compared each company’s last two quarters of 2022 to their best and average year performance to quantify the excess (loss).
In 2022, the Empire/Sobeys outperformed their best year in Q2 by $7 million, but underperformed their best year in Q3 by $44 million. In his two most recent quarters of 2022, the Empire/Sobeys posted a net loss of $37 million compared to their best-year performance.
Meanwhile, Metro’s 2022 performance is $3 million higher in the first quarter and $14 million lower in the second quarter compared to its best year. In his two most recent quarters of 2022, Metro Inc. posted a net loss of $11 million compared to its best-year performance.
Nothing overly scandalous.
Loblaws are an exception. In the first quarter of 2022, Loblaws surpassed his best-year performance worth $68 million. In Q2 2022, it outperformed its best year by $112 million. So, in 2022, Loblaws’ gross margin so far exceeds its best five-year performance by $180 million, or about $1 million per day to date.
Does this mean Loblaws are greedy?
Loblaws’ reported earnings combine food, health, beauty, apparel and other general merchandise into one category. These verticals have different margins. Of course, the ethics and social responsibility of selling bananas and eggs is quite different from selling lipstick.
Loblaws’ Q2 2022 news release attributed the increase in sales to higher same-store sales for food retailers (0.9%) and pharmaceutical retailers (5.6%).
Readers of Loblaws’ financial statements cannot affirm whether increased non-food sales are responsible for the majority of the “excess” gross margin.
Perhaps companies like Loblaws should report their food business separately from their non-food business. Unlike the sale of T-shirts or perfume, the sale of food staples is inherently ethical and the stakes are very different.
It is unclear how similar the nature, sales and production of food retail and pharmaceutical retail are. The Canadian deserves to be informed, especially when food inflation is in his double-digit levels.
Yet the blame battle continues and Canadians want a scapegoat. This indicates another change is needed, and it has to do with the Competition Bureau.
The agency has consistently disappointed the Canadian public by not providing strong support to Canadian lawmakers, supporting takeovers, and overseeing investigations with little to no vigor.
Grocery stores are easily blamed, just because we know them. Despite the fact that several multinationals such as Unilever, Kraft Heinz and Kellogg’s have made sizable profits recently, the more obscure part of our food supply chain has been undergoing “greedflation” for months. has been spared by the accusation of
Agriculture has also contributed to higher retail prices, but few would cite farmer economics as a factor. The Department must see the entire food system from both ends.
The outrage directed at grocery stores is truly unique to Canada. Canadian consumers feel unprotected.
Things are different in the US. Their inherent hatred of monopolies and oligopolies has forced legislators and bureaucrats to act swiftly and forcefully. Kroger is currently looking to acquire Albertsons for about $25 billion. This makes Kroger his second largest grocery store in America.
The deal has hit major regulatory hurdles. Kroger could be asked to part with nearly 400 of his stores, creating a new grocery rival.
This never happens in Canada. When Provigo was bought by Loblaws in 1998, or when Metro bought A&P in 2005, or even when Sobeys bought Western Safeway, few raised an eyebrow.
With more financial data to reveal food sales and more authoritative oversight bodies from authorities, the industry and grocery stores may have a chance to regain consumer confidence.
Sylvain Charlebois is Professor and Senior Director of the Agro-Food Analysis Lab at Dalhousie University.
Guest Column: More Warrants Needed in Canada to Keep Grocery Prices Down
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