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Kelowna's Homepage ●●●●
Tuesday, Dec 26


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PROOF JUST NOT THERE FOR GROCERY "GREEDFLATION"


PERCEPTION TRUMPS REALITY

Contributed - Dec 17, 2023 / 11:00 am | Story: 462874
Photo: Contributed

When it comes to selecting the most significant non-scandal of 2023, the
“greedflation” campaign is by far the absolute winner.

Politicians, and even some knowledgeable economists, have convinced many that
Canadian grocers have taken advantage of the recent inflationary cycle to profit
unfairly. Despite compelling data and many reports pointing to the contrary,
many Canadians, including several reporters, remain convinced of this narrative.

Jim Stanford, an economist known for commenting on food prices, is the most
recent example of how Canadians seem to be embracing arguments against food
companies without questioning their validity. Stanford recently claimed net
profits for grocers in 2023 would surpass $6 billion for the first time, a
statement that gained significant attention and raised the ire of politicians
and many Canadians. The media largely accepted these claims as fact without
delving into the source of the data.

It’s important to note the figures provided came from Statistics Canada, rather
than corporate financial statements, which arguably would be more reliable.
Statistics Canada’s Table 33-10-0225-01, which was used for the $6 billion
argument, can include convenience stores, specialty food stores and not just
major grocers.

Net profits are not a suitable metric to consider unless the intention is to
sensationalize the issue of profiteering. To assess whether a grocery chain is
indeed profiteering, one can look at gross profit margins, calculated as
revenues minus the cost of goods sold. It’s worth mentioning that the gross
profit margins for our major grocers have remained relatively stable over the
past five years, based on data from their financial reports.

Photo: Contributed

Now, let’s also examine profits, a topic that politicians often emphasize. The
combined net profit for the three major Canadian grocery chains (Loblaw, Sobeys,
and Metro) in the past 12 months amounted to $3.808 billion. It is highly
unlikely that figure will exceed $6 billion in the current year, as claimed
earlier this week. To reach such profits, those chains would need combined
revenues totalling $110.6 billion over the past year.

When considered as a percentage of total sales in the last 12 months, the
combined profits represent only about 3.4%, which is an incredibly modest
return. Additionally, this figure includes non-food items like cosmetics and
prescription drugs, which typically have higher profit margins.

In essence, though, there is nothing inherently wrong with profits, and in a
functioning economy, companies should report increased profits annually due to
inflation. Canadians should understand this. People’s salaries increase, the
prices of goods and services rise, and naturally, net profits increase in dollar
terms. This is why it is critical to analyze percentages over time for a more
comprehensive assessment.

In 2023, emotions seemed to overshadow a proper understanding of the food
business world and food supply chain economics among many Canadians. Blaming the
food industry has been, and continues to be a convenient diversion for
politicians, diverting attention away from the real issues impacting inflation,
such as public overspending and fiscal policies, among others.

However, grocers are not without blame either. Beyond profiteering, the industry
has some challenges to address. Regulatory compliance has been an issue, and the
bread price-fixing scandal has certainly tarnished the industry’s reputation.
While it’s true that some level of greed exists in the food industry, as in any
economic system, it can also be taken to an extreme.

Our grocery chains here in Canada are well-managed, but it is also to note
profit margins in other countries like the United Kingdom and the United States
are about half of what they are here. While acknowledging the evidence of
profiteering in Canada is weak at best, there is a need for more competition in
the market.

Francois-Philippe Champagne, Canada’s innovation minister, who is on a mission
to increase competition, called on other grocers abroad to invest in Canada.
However, the challenge lies in making Canada an attractive destination for
investment, which cannot be achieved without a mandatory code of conduct that
levels the playing field between the major grocery chains, independent grocers,
and suppliers alike.

Right now, players like Loblaw and Walmart have way too much influence and are
dictating supply chain rules, a dimension consumers don’t necessarily see. It’s
been like that for a while now. With a well-defined mandatory code of conduct,
Canadians may have to wait a considerable amount of time before witnessing the
entry of new grocery players into the Canadian market.

Sylvain Charlebois is senior director of the agri-food analytics lab and a
professor in food distribution and policy at Dalhousie University.

This article is written by or on behalf of an outsourced columnist and does not
necessarily reflect the views of Castanet.

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Welcome to Writer’s Bloc, an opinion column for guest writers to share their
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