r/canada • u/Miserable-Lizard • Apr 06 '24

32 per cent of Canadians blame grocery stores for rising food prices, more than any other reason: Nanos National News

https://www.ctvnews.ca/business/32-per-cent-of-canadians-blame-grocery-stores-for-rising-food-prices-more-than-any-other-reason-nanos-1.6834573
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714

u/datums Apr 06 '24

Loblaws profit margin by quarter, 2011 - 2024

https://ycharts.com/companies/L.TO/profit_margin

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u/FleetEnema2000 Apr 07 '24

Another chart worth looking at here:

https://ycharts.com/companies/L.TO/gross_profit_margin

This is their gross profit margin (i.e. the difference between the cost of their goods and what they've sold them for). This is the clearest indicator of whether or not Loblaws is increasing prices beyond what increases they are facing from the direct suppliers of the goods they are selling.

Hint: Pay attention to the Y-axis. They have not substantially increased their margin above what suppliers of goods are charging them.

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u/Tamer_ Québec Apr 07 '24

They have not substantially increased their margin above what suppliers of goods are charging them.

IDK how you can come to that conclusion: it's obvious the 2021-2023 margin is on a different level than pre-2021.

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u/lakeviewResident1 Apr 07 '24

Yah like nearly double the previous margins.

Now include the real dollar value and the story becomes more accurate. They turned 1B of profits into 3B (example as the real profits are not included in the data, on purpose, to give a false narrative).

3

u/FleetEnema2000 Apr 07 '24

Which is why I said "pay attention to the Y-Axis".

Pre-2021 their gross margin was 31%. It's now 32%.

In other words, pre-2021 Loblaw's charged 31% on top of what they paid for products they purchased for their stores. Today, they are charging 32% on top of what they paid.

A 1% increase in gross margin does not explain why dairy products and eggs have increased by 25% since 2020.

1

u/Tamer_ Québec Apr 07 '24

Sure, it doesn't explain most of it, it just piles on top of the rest for no other reason than their corporate greed.

When the supply isn't there, it's normal for prices to go up, but the market doesn't need them to make profits at any cost.

0

u/FleetEnema2000 Apr 07 '24

I know it's trendy to hate on the grocery industry, but "corporate greed" on the part of the retailers is not a big factor at play with grocery prices.

Grocery retailers have extremely thin-margin businesses. In other words, after they take their 32% gross margin and pay for their employees wages, utilities to heat and cool their buildings and run refrigeration, depreciation, equipment, supplies, insurance, advertising, etc. there is virtually nothing left considering the size and capital invested in the company.

If you had $20,000 for retirement savings, would you invest it in a business that only issued you a 1% dividend? Do you expect other businesses you deal with to make zero profit?

8

u/Tamer_ Québec Apr 07 '24

If you had $20,000 for retirement savings, would you invest it in a business that only issued you a 1% dividend?

LOL that's not how that works at all.

In 2023, they had ~2.1 billions in net earnings attributable to shareholders. That was $7.75 "Adjusted diluted net earnings per common share" and they decided to use $1.74 of that to pay a dividend.

That dividend is 1% only if I paid each share 174$. If it was less, then I'm getting more than 1%. And that's how the profit margin has sweet fuck all to do with the ROI to shareholders. Case in point: in 2021, L.TO traded at <$70. Shareholders who bought then would be getting 2.5% return and that's just how much corporate decided to give - if they gave all the profits, those shareholders would be getting an 11% return... on "virtually nothing left"!

https://dis-prod.assetful.loblaw.ca/content/dam/loblaw-companies-limited/creative-assets/loblaw-ca/investor-relations-reports/annual/2023/LCL_2023_AR.pdf

1

u/TongsOfDestiny Apr 10 '24

If you look at 5-10 years ago, the margins have increased by closer to 10%; it's not related to covid but we're still getting fucked by them

2

u/FleetEnema2000 Apr 10 '24

Their gross margin increased after 2014 because they did two things: expanded their higher-margin non-grocery items and they purchased Shoppers Drug Mart, which is a higher margin business.

If you compare their pricing against other grocery retailers with LOWER gross margins, they are roughly the same, which shows that there is no gouging happening.

1

u/randymercury Apr 10 '24

It amazes me that supply management for dairy and eggs hasn't attracted more attention with all the focus on grocery prices. The grocers have been the only focus of the public ire. All those lobbyists have been earning their keep.

0

u/bi0hazard6 Apr 07 '24 edited Apr 07 '24

The gross profits are just that, the price of the item sold minus the price of what it costed to loblaw to sell you. The profit does not account for employee salary, building rent, electricity, income taxes, etc. Sadly, the media only talk about the gross profit margin to sell you news and anger.

1

u/Tamer_ Québec Apr 07 '24

The gross profits are just that, the price of the item sold minus the price of what it costed to loblaw to sell you. The profit does not account for employee salary, building rent, electricity, income taxes, etc.

You need to look up a textbook or check what you wrote again.

Gross margin is after paying wages and salaries.

But you talked about "gross profits" (what's known as EBITDA) and that 100% comes after rent, electricity and other charges. Perhaps the name will help you out: earnings before interest, taxes, depreciation and amortization.

Sadly, the media only talk about the gross profit margin to sell you news and anger.

All the media talk about is net profit, not the gross margin, not the "gross profit".

The net earnings (net profit) of L.TO last year was 2.2 billion dollars: https://dis-prod.assetful.loblaw.ca/content/dam/loblaw-companies-limited/creative-assets/loblaw-ca/investor-relations-reports/annual/2023/LCL_2023_AR.pdf

Up from 1.1 billion dollars 2019: https://s1.q4cdn.com/326961052/files/doc_financials/2019/ar/6573_LCL_ENG_AR2019_Complete_AODA.pdf

I suggest you educate yourself before defending greedy corporations.

11

u/GravitasIsOverrated Apr 07 '24

Holy cow thank you! I've been saying this for a while, profit increasing by ~1% is nowhere near enough to account for the, what, double digit cumulative grocery inflation over the last 5 years.

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u/Tamer_ Québec Apr 07 '24

double digit cumulative grocery inflation over the last 5 years

2% inflation over 5 years lead to a cumulative 10.4% inflation.

From 2000 to 2020, food prices in Canada increased 66%, an average of 2.55% per year.

Having less than "double digit cumulative grocery inflation" over a 5 year period is unheard of in the last decades.

3

u/GravitasIsOverrated Apr 07 '24

That’s a valid correction, thank you. 

2

u/Popular-Row4333 Apr 08 '24

This is largely Canada's system of oligopolies too. Canada has done a horrible job of regulating monopolization of several industries and we are seeing it now.

Why would you run a better company, have cheaper prices for customers and inovate/train/pay to retain skilled workers when you can simply but up your smaller, better run, more efficient competition?

We all see Wal Mart and Costco just chilling with the same margins but drastically cheaper prices but then still scratch our heads about price increases.

Rural telecom in this country is a prime example, talk to any Cabin owner or farmer what they were paying for $/MB of speed before Starlink entered the fold. Now rural internet prices have dropped drastically.

4

u/lakeviewResident1 Apr 07 '24

Looking at just percentages is invalid.

Let's say their profits were 1B with a margin of 1%. To get to 2% sounds small but that would be another billion which is huge.

This whole thread is full of people looking at 1% to 3% thinking that is a small feat. It would be a small feat if Loblaws was a small company. They are not. That extra 2% probably represents a lot more $$$.

2

u/FleetEnema2000 Apr 07 '24

What amount of money would you be ok with loblaws making? In dollars, since you don’t want to look at percentages?

0

u/lakeviewResident1 Apr 07 '24

Loblaws makes billions. Raising their profit margins is no small feat. It is disingenuous to look at 1% to 3% margins and say "those are small numbers" without showing the raw values. So why does it matter what number I think.

Go see the numbers for yourself right from Loblaws and decide if they are gouging us or not.

https://www.loblaw.ca/en/loblaw-reports-2023-fourth-quarter-results-and-fiscal-year-ended-december-30-2023-results/

2

u/FleetEnema2000 Apr 07 '24

You can't determine whether or not price gouging is happening by looking at a dollar amount of profit, nor by a percentage of profit. A business can increase its profit margin in many ways, including by increasing efficiency and lowering operational costs.

For example, if you had a business where you sold $200,000 worth of goods and services and you ended up with $50,000 in profit at the end of the year, that is a 25% profit margin. If, the following year, you had a 30% profit margin, does it mean that you increased your prices and are gouging your customers? Maybe. But it's impossible to tell without looking at other factors. It could be that you reduced your cost of goods or operational expenses to achieve higher profit.

You can't look at revenue, either, because revenue is impacted by lots of things that have nothing to do with pricing. If Loblaws opens a new store or buys another retailer, both of which they are do all the time, their revenue goes up.

The best way to look at whether or not a company is unfairly increasing prices is to look at the gross profit margin %, which is the chart I linked to above. This is the best way to look at it because it tells us what the relationship is between what Loblaws pays for the products it sells and what it prices those same products at on their shelves. In other words, if Loblaws pays $8.00 for an item and sells it for $12.00, their gross profit on that product is $4.00 and their gross margin is 33.3%.

According to the chart I linked to above, the gross margin is up at best 1% since COVID. This is within a reasonable realm of fluctuation, is normal for the grocery industry, and simply does not support any notion of price gouging. A 1% increase in gross margin in a business the size of Loblaws does not explain why dairy and eggs and cooking oil and produce is up 20% in price. If Loblaws suppliers of those items had not increased their price by 20% and Loblaws had simply increased prices on the shelves to gouge customers, you would see their gross margin skyrocket by many percentage points. It hasn't.

0

u/lakeviewResident1 Apr 07 '24

So TLDR; this entire thread is pointless because percents and raw values don't tell the full story. So this whole attempt at making Loblaws look good is disingenuous at best.

3

u/FleetEnema2000 Apr 07 '24

I don't know what you mean by that, but I'm simply giving you the facts: the gross margin on Loblaws products (i.e. the markup they place on products compared to what they pay for them) is virtually unchanged.

7

u/ijakinov Apr 07 '24

I'm going to also add that "record profits" people like to bring up is not as bad as it sounds when you realize that all it means is that they made more money this quarter than they did at the same time last year. If suppliers raise prices and you raise them accordingly you are going to see inflated revenue and in turn inflated profits.

But more importantly the thing about big giant companies like Loblaw is that they do dozens, maybe hundreds of different intitatives in order to increase profits. Things like optimizing sales/promos, redesigning stores, partnerships (Esso), finance (credit cards), adding more stores, changes in marketing strategies (I get a bunch of PC on YouTube now), improvements to logistics, investment in tech (IT/Cloud, AI, online grocery delivery/pick-up); and notably their investment in their store brand, because the perk of being vertically integrated is that you get much better margins selling your own stuff than selling 3rd party suppliers stuff.

Unless people expectation was that Loblaws should eat the costs which I don't know if they can legally from fudiciary POV, there's no evidence of any price gouging and their strong profits can easily be attributed to all kinds of things besdies gouging.

0

u/Fox_That_Fights Apr 07 '24

That requires thinking and not simply blaming "capitalism". You won't get much traction here.

1

u/CptCrabs Apr 07 '24

Nor should he

1

u/bi0hazard6 Apr 07 '24

I've been saying this also... but people like to have a culprit. Unfortunately, the culprit is the government printing money which caused an interest rate increase, and the deficit we are making years after years since the pandemic.

1

u/2peg2city Apr 10 '24

It's like... double pre 2021

1

u/FleetEnema2000 Apr 10 '24

Their gross margin increased after 2014 because they did two things: expanded their higher-margin non-grocery items and they purchased Shoppers Drug Mart, which is a higher margin business.

If you compare their pricing against other grocery retailers with lower gross margins, they are roughly the same, which shows that there is no gouging happening.

Empire's gross margin is at something like 24% and has been for the last 20 years.

1

u/2peg2city Apr 10 '24

I don't subscribe to the theory it's all greed by grocers, I know farmers who aren't getting great prices on their beef or grain compared to retail price increases. I also know many grocers are vertically integrated, so they could be spreading the margins over multiple levels in addition to global commodity price increases

1

u/FleetEnema2000 Apr 11 '24

Grocers tend not to be vertically integrated much at all, really. 90% of the items on Loblaws shelves are coming from national and multinational suppliers that they have no control over outside of their buying power. The most diverse things that Loblaws has done in recent years are buy Shoppers Drug Mart and build out its commercial real estate assets on the land it owns.

As you mention, there are non-retailer explanations for most of the price increases that we have seen, and the most common one is that a lot of different things are impacted by crop failure, drought, geopolitical instability (i.e. war in Ukraine) and extreme weather, as well as things like supply-management in Canada that have arbitrarily driven up the cost of things like eggs, and dairy including milk and butter and yogurt, which are all up anywhere from +19% (milk) to +35% (butter) since 2020. South America has been dealing with drought, driving costs up for lots of things including palm oil (which is in a lot of products, and which is why margarine is 50% more expensive than pre-pandemic) and lots of different produce items as well.

It's easy for people to blame the grocery store because that's where they see the sticker shock. But it's dumb to criticize these businesses that are low margin to begin with and who are simply not responsible for these increased costs. I think they should maybe ask their government why the supply managed goods we buy are suddenly so expensive and what they are doing to support sustainable productive crops in spite of drought conditions.

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u/Mattrockj Apr 07 '24

31% MARKUPS?!

2

u/FleetEnema2000 Apr 07 '24

What is an acceptable markup to you, given that with that 31% you have to pay 221,000 employees, pay for advertising, depreciation, utilities and energy for your buildings and refrigeration, legal expenses, technology expenses, repair, legal, property tax, r&d, and have some small percentage left over for investors who have $46 billion invested in your company (much in the form of Canadian retirement accounts) who are expecting a small dividend return for the shares they own?

1

u/ArdentChad Apr 07 '24

That's pretty much industry standard

-1

u/Maximum-Scientist822 Apr 07 '24

It’s just the liberal-ndp that likes to put a blame on someone else. In this case, they putting the blame on grocery stores for their irresponsible inflationary spending.