Canada’s top three grocers posted higher profits this year compared to their average performance over the past five years, new research from Dalhousie University has found.
Critics have accused grocers of so-called greed, suggesting they are chasing profits at a time when food prices are rising at the fastest rate in more than 40 years, and researchers say a lack of transparency about financial results is not helping.
“These companies are huge and quite diverse from a retail perspective, so we recommend separating food sales from other sales,” said Sylvain Charlebois, a Dalhousie professor and co-author of the report from the university’s Agri-Food Analytics Lab.
According to the report, Loblaw Companies Ltd. was particularly noteworthy because it has outperformed its five-year average, but outperformed any of those years individually.
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The grocery chain’s gross profit in the first half of 2022 beat its previous best by $180 million, equivalent to about $1 million a day, the study found.
By comparison, Metro Inc.’s recent gross profit was $11 million less than its best result in the past five years, while Sobeys Inc. parent Empire Co. Ltd. made $37 million less in the first half of the year compared to its past five years. the best results, the report says.
But the report’s authors said the lack of more detailed financial data makes it difficult to explain why all three supermarket companies are outperforming their average this year.
“We wanted to see if grocers were taking advantage of high inflation to charge extra for food,” said Samantha Taylor, senior lecturer in accounting at Dalhousie’s Rowe School of Business and co-author of the report.
“But it’s unclear. We don’t have that information.”
It is unclear whether the increase in sales will come from food
According to international accounting standards, publicly listed companies can bundle together operating segments with similar characteristics.
For example, Loblaws’ retail segment includes sales from grocery stores, pharmacies, including its Shoppers Drug Mart chain, and other health, beauty and general merchandise sales.
So it’s unclear whether the increase in sales is due to food or other items such as baby clothes or makeup.
Charlebois said the report’s findings underscore the need for greater transparency in Canada’s food industry. “Selling food is not the same as selling lipstick.”
It’s entirely possible that consumers will spend more on products with higher gross margins, such as cosmetics and clothing, Taylor said.
“It’s also possible that grocers have increased their margins on food. We just don’t know.”
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The report comes as food inflation continues to accelerate in Canada. Grocery prices rose 11.4 per cent in September from a year earlier, the biggest increase since 1981, according to Statistics Canada.
Rising food prices have prompted the Canadian Competition Authority to launch an investigation into competition in the food industry.
According to grocers, the margins have not changed
But grocers defended their profits, saying their margins had not changed.
Loblaws vice president Catherine Thomas said retail is “the face of inflation, but we’re not the cause.”
“Inflation is a global problem, not just a Canadian one, and the price on our shelf represents many costs and many companies up the supply chain,” he said. “This is yet another study that looks at food prices without even looking a step up the chain, including significant price increases by global producers.”
Loblaws’ food profit margin has remained unchanged since inflation began, Thomas added.
Charlebois suggested that the best way for Loblaws to defend its position would be to release the full information.
“On the other side, people are trying to find scapegoats and point the finger at grocers,” he said. “On the other side, grocers are defending themselves, but without much transparency.”
Marie-Claude Bacon, Metro’s vice president of public affairs and communications, said that Montreal-based Ruokakauppa’s gross margins have remained stable for several years.
“Despite some misleading claims, we work hard every day to provide added value to our customers and help them in the current global inflationary environment,” he said.
Sobeys did not immediately respond to a request for comment.
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Michelle Wasylyshen, national spokeswoman for the Retail Council of Canada, said while grocers’ overall revenue increased during the pandemic as more people ate at home, profit margins have been relatively flat.
“The grocery industry is a relatively low-margin business,” he said. “Usually, the income from the grocery trade corresponds to three or four percent of turnover.”
The overwhelming increase in prices on store shelves is unprecedented price increases grocers are facing from their vendors, such as food manufacturers, processors and wholesalers, Wasylyshen said.
Canada also has lower food inflation than many other countries, with food price increases of 13 percent in the U.S. and 14.5 percent in the U.K., he said.
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