Critics accuse Canadian grocers of ‘greed-flation’, but quarterly results suggest otherwise


RIP, corporate greed.

As inflation took off this spring, progressive critics pointed to ‘greed-flation’, arguing that greedy grocery stores and energy companies were defrauding consumers by sneakily raising prices beyond what their own costs justified. croissants.

But the most recent quarterly reports show profit margins at major grocers either falling or holding steady – and never really above recent average levels. Meanwhile, refining margins have shrunk, contributing to lower prices at the pump for several weeks.

So, good news: corporate greed has been defeated, at least if you believe the logic of federal New Democrats and leftist economists and media.

However, NDP leader Jagmeet Singh is not giving up the fight against greed just yet. In an Aug. 3 Twitter thread, Mr. Singh decried corporate greed, as evidenced by Loblaw Co. Ltd.

“Corporate greed is Loblaw’s gross profit jumping 21% as wages for its workers fail to keep up with rising inflation,” he wrote, repeating his stance that the federal Liberals should expand their excess profits tax and use the proceeds to send money to cash-strapped low-income Canadians.

Mr. Singh’s arithmetic is opaque: Loblaw’s gross profit dollar amount in the second quarter actually rose 4.9% from the year-ago quarter. Or, if you prefer, gross profit was up 5.8% from the previous first quarter. (The party did not respond to questions about Mr. Singh’s calculations, or his broader assertion of corporate-driven inflation.)

Specifically, Loblaw’s gross profit margins barely budged. It’s those margins that matter, especially in an inflationary environment where prices are rising, driving up the dollar value of gross profits. If Loblaw did increase its prices opportunistically, those margins would increase significantly.

They are not. In the second quarter ended June 18, Loblaw’s retail gross margin increased slightly to 31.4% from 31.1% in the first quarter. But the company said its margin on food sales was stable; the increase in margin came from its pharmacy business, particularly from increased sales of higher-profit items, such as cosmetics.

Gross margins actually fell in the last quarter for Empire Co. Ltd., which operates the Sobeys and Longo’s chains. Empire’s gross margin in the quarter ended May 7 was 25.6%, down from the first and second quarters a year ago.

Gross margins surfaced repeatedly on Metro Inc.’s third-quarter earnings conference call this week — but financial analysts were pressing the company about declining margins. Chief Executive Eric La Flèche told analysts his company was essentially subsidizing grocery shoppers, with higher profits from pharmaceutical operations offsetting tighter food sales margins so far this fiscal year.

“We have not been able to pass on all the food cost increases,” he said. Far from inflation being an opportunity to increase profitability, Mr. La Flèche says that it puts pressure on margins, contrary to the assertions of the NPD and others.

Metro appears to be benefiting from soaring prices, but not in the detrimental way that Mr. Singh claims. The company said its sales of higher-margin hot meals and deli items were increasing as consumers suddenly shunned more expensive restaurants in favor of take-out meals.

None of this comes as a shock to Sylvain Charlebois, director of Dalhousie University’s food analysis laboratory. Professor Charlebois, along with Dalhousie accounting professor Samantha Taylor, published a report last month which analyzed the gross profit margins of Loblaw, Empire and Metro between 2017 and 2021. Their findings: Gross profit margins had increased slightly, but were relatively stable. This does not constitute greed-flation, Professor Charlebois said in an interview.

A follow-up report expected to be released later this month will compare the gross margins of Canadian and U.S. food retailers. Full results are not yet available, but Professor Charlebois said margins in the two countries are similar, disproving the idea that large Canadian grocery chains wield market-distorting power.

But much of the discussion about greed in the grocery store ignores this data and instead exploits the public’s dislike of Big Grocery. “He’s an easy target,” he said.

Sheila Block, senior economist at the Canadian Center for Policy Alternatives, said the grocery retail industry’s most recent financial results weaken the argument that greed is still going on. “We’re getting mixed signals now,” she said.

But Ms Block said she had no doubts grocers used inflation hedging to raise prices earlier this year, only stopping when consumers became increasingly aware of rising prices. costs.

In an email, Michelle Wasylyshen, national spokesperson for the Retail Council of Canada, said profit margins for grocery store chains are slim compared to those of the food vendors who supply them with product.

Indeed, Professor Charlebois said greed could exist in the food industry – and if so, it is happening among food vendors, not grocery stores, whose pricing decisions are well known to the public.

Still, he acknowledges that the ongoing controversy over bread prices has made many Canadians wary of the industry. The Competition Bureau is conducting a price-fixing investigation, which was made public in 2017. That year, Loblaw and its parent company George Weston Ltd., which also owns bread maker Weston Foods, said it concluded a deal with the bureau for their role in an alleged plot by several food companies to fix bread prices between 2001 and 2015. No other food company has made such an admission, and several have released strong statements of denial.

“Consumers have every right to be skeptical,” Professor Charlebois said.

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