Food Prices

[Firebot]

Originally Posted by GordonBlue

I'm looking a the fact each quarter they're making record profits.
Then they guy comes out to say that prices will likely rise.

I don't give a #### what their margins are. The bottom line is these guys are making billions in profit.

They can afford to give us a break for something we need to survive, and still make billions in profit.

But they did give us a break, and all Canadians rejoiced as the media parroted their no name price freeze last year.

https://financialpost.com/news/retai...ices-inflation

Grocers are an easy scapegoat, because we have to buy essentials and it's something we do regularly. This is also why we complain about gas prices.

When the pricing freeze was over, people still continued shopping as they have to.

And now Liberal MPs are patting themselves for hard bargaining and getting grocers to promise to help Canadians.

https://www.cbc.ca/news/politics/gro...ezes-1.6987787

"These measures will bring a much needed [and] more competitive marketplace and the winners of that are obviously Canadians," he said, adding that Canadians should expect to see grocers start rolling out these plans "within days."

The existence of this thread is proof that this type of partisanship propaganda works.

2 months later we get this.

https://www.blogto.com/city/2023/12/...d-bills-go-up/

So much winning. And we get the weird "the poor will rise up" posts yet nothing actually happens. Everything stays the same.

In the end, no matter what grocer CEOs says to appease politicians who in turn parade their wins, grocers work to stick to a 3% profit margin.

All costs get passed on to the consumer. Supply chain costs gets passed on, tax measures gets passed on. Store improvement costs get passed on while simultaneously giving themselves positive PR through the good old media. Wage hikes get passed on.

Meanwhile, we continue to have the milk cartel in charge that draws international attention and which all major political parties promote, we continue to have supply management directly stifling competition and no one bats an eye or even questions it in these types of threads.

https://hir.harvard.edu/canadas-dair...r-of-big-milk/

https://www.cp24.com/news/canadian-d...utoPlay%3Dtrue

https://www.thestar.com/business/an-...b2916f619.html

Good article on supply management

https://www.thestar.com/business/wha...77d43ea65.html

I feel the anger is misdirected.

[chemgear]

Originally Posted by Doctorfever

Ya. The whole “record profits” is kinda misleading.

Every time I get a raise in pay I am also making record profit.

Why, that sounds like somebody needs to be hammered with a "windfall tax". Get 'em!

[MoneyGuy]

Originally Posted by Doctorfever

Ya. The whole “record profits” is kinda misleading.

Every time I get a raise in pay I am also making record profit.

If the inflation rate is higher than your pay increase, are you really?

[DoubleF]

Originally Posted by GordonBlue

I'm looking a the fact each quarter they're making record profits.
Then they guy comes out to say that prices will likely rise.

I don't give a #### what their margins are. The bottom line is these guys are making billions in profit.

They can afford to give us a break for something we need to survive, and still make billions in profit.

I hope I don't overly simplify the explanation.

A company typically needs positive profit margins to continue to exist as an entity, pay down loans etc. and because you can't sit down and drill down into millions if not billions of transactions over multiple periods (individual transactions, not dollars of the PPP cycle and SRR cycle; purchases, payables, payments cycle and Sales, receipts and receivables cycle) that the entity will engage in, you need to rely on wide brush tools like gross margins to stay solvent. Keep in mind that for every billion dollars or movement in, 1% is 10 million.

If you had an item that cost you $0.48 to acquire, store and sell and you sold it to the consumer for $0.50, that's a margin of 4%.
Let's say that item now costs $0.95 to acquire and you sell it for $0.99, that's a margin of 4%.
But let's say now that the item is now costs $3.85 to acquire and you sell it for $3.99, your margin is 3.5%.

If you always sell 1,000,000 units per month. You'd get:
- Profit of $20,000 at $0.50.
- Profit of $40,000 at $0.99.
- Profit of $140,000 at $3.99.

Yes, the profits are up to record levels. But so is the cost of a plum or peach or egg. They're not gouging you at all based on a definition that they're intentionally increasing the profit margin. They're selling those things for the same purchase and resale ratio they have always sold them at (if not slightly less). This is only a few items that a grocery store sells.

"Maybe they should limit the margins so that the total profit is limited." Grocery store chains usually have something like 10,000 to 40,000 unique items and SKUs for things they sell at their stores. It's not an effective use of time. If then you do it across the board, you might have negative margins. But going back to the original item. If it costs $3.85 to acquire that item, then it costs the company $3,850,000 per month to purchase that item for 1 million people to buy. It originally cost $500,000 to purchase that item for 1 million people to buy. The store needs to maintain margins so that the next time certain items have a meteoric rise, they have the cash flow necessary to acquire it. Or they have the money to expand locations and improve logistics of their operations etc. It is not a wise decision for the company to drop the margins and risk their ability to operate if they're doing nothing wrong and people will complain either way. Otherwise, you'd see some of these stores potentially run into shortages and solvency issues quickly. This is the purpose of margins for these companies.

So let's say they sell that same item that costs $3.85 for $3.90 and make $50,000 in profit on that item selling 1,000,000 of the things. Will people complain any less? No. So there's no point in dropping the selling price into the 1-2% range to reduce profit if there's risk that operations can be badly affected if those items go from $3.85 to $4.00 or higher.

What the companies do in terms of bonuses and compensation is a totally different story that sure, go ahead and be enraged at that. If a company sold 10 billion and had margins of 2%, then there would be 200 million in excess. They might skim 10% and give their management 20 million and reinvest 180 million into the company and we get upset by that. That's fair. But keep in mind the scale of how big things go. That 20 million based on my crap calculations is .2% of the activity of the company. Or, some of the profit margin is legally obligated to be paid out to shareholders on a percentage basis as dividends to the stock holders.

Loblaws alone is about $15-20 billion in revenue per quarter which x4 around 60-80 billion in revenues per year. If my previous calculation scale seemed big, it's not even as big as the real scale of the companies. As mentioned, grocers operate on average scales of about 2-3% margins. They operate on a thin line between profitability and rapid move towards insolvency. It's only due to a nationwide level scale that it seems insane and unreasonable, but in reality, if you start comparing companies on gross margin scales, what is going on with grocers is not completely unreasonable.

Keep in mind also that a company like Loblaws can operate on smaller margins due to their size, logistics/tech advantage and scale of operations. Small mom and pop grocers typically have to be operating at much higher margins of 7-14% to stay alive. This again is due to scale because these small grocers aren't selling 1 million units, they're selling hundreds.

[GordonBlue]

makes sense. I guess it wouldn't hurt so bad if the place I worked ever provided wage increases.
I'm at the top of my pay scale, so not ever getting a cost of living increase leaves me less every year to deal with higher prices.

I just get stuck in the optics of it. trying to pay these higher prices yet always reading about record profits for all these industries. frustrating.

[DoubleF]

Originally Posted by GordonBlue

makes sense. I guess it wouldn't hurt so bad if the place I worked ever provided wage increases.
I'm at the top of my pay scale, so not ever getting a cost of living increase leaves me less every year to deal with higher prices.

I just get stuck in the optics of it. trying to pay these higher prices yet always reading about record profits for all these industries. frustrating.

That's the media spin. It's designed to get us.

The biggest reason why we feel the squeeze is because we're squeezed in more directions than one. If it wasn't for debt loads and debt servicing costs increasing as well and costing us thousands if not tens of thousands a year simultaneous to the increase in cost of living, many of us might not sweat the grocery stuff at all.

[opendoor]

Originally Posted by you&me

I think Slava's point is that the grocers aren't necessarily gouging; they're making the same margins they always have, just on higher input costs.

Most businesses will operate on fairly static margins (costs go up, prices go up) and because the demand in the grocery business is essentially inelastic, they're likely to have some of the stickiest margins.

In this case, record profits are a function of higher input costs, not unnecessarily gouging the consumer.

Except historically at least, corporate margins generally get squeezed during high inflation periods. So normally, businesses share some of the pain of high inflation along with consumers, and then margins eventually recover over time as inflation subsides.

But this time that didn't really happen. Margins stayed static and profits increased. So relative to the normal pattern, they were gouging to some degree.

[TheIronMaiden]

Food prices are one thing, but Canadians compound the problem by wasting an enormous amount of food.

https://madeinca.ca/food-waste-canada-statistics/

[Cecil Terwilliger]

Originally Posted by TheIronMaiden

Food prices are one thing, but Canadians compound the problem by wasting an enormous amount of food.

https://madeinca.ca/food-waste-canada-statistics/

[you&me]

Originally Posted by opendoor

Except historically at least, corporate margins generally get squeezed during high inflation periods. So normally, businesses share some of the pain of high inflation along with consumers, and then margins eventually recover over time as inflation subsides.

But this time that didn't really happen. Margins stayed static and profits increased. So relative to the normal pattern, they were gouging to some degree.

I can see some margins getting squeezed during inflationary periods, as consumers can't keep up with increasing prices, but would imagine that would apply to business with more margin to squeeze, which was kind of the point... Grocer's margins are pretty thin, so their pricing is pretty inelastic and there's not a lot for them to give, even if they were feeling altruistic, as some seemingly assume they should be.

[opendoor]

Originally Posted by you&me

I can see some margins getting squeezed during inflationary periods, as consumers can't keep up with increasing prices, but would imagine that would apply to business with more margin to squeeze, which was kind of the point... Grocer's margins are pretty thin, so their pricing is pretty inelastic and there's not a lot for them to give, even if they were feeling altruistic, as some seemingly assume they should be.

That probably has more to do with Canada basically having only 3 huge grocery retailers and little competition. Grocer EBIT margins in the US dropped during 2022 and were lower than pre-pandemic. Meanwhile in Canada, beyond being significantly higher than those in the US, EBIT margins have seen increases in recent years:

https://www.datawrapper.de/_/a2X0V/

For context for those numbers, the US average EBIT margin for the 15 largest grocers was 4% in 2022 whereas the big 3 in Canada are between 4.4% and 7.7%. Perhaps that's entirely due to diversification (e.g. selling higher margin non-food goods), but a lot of US grocers do the exact same thing.

[iggy_oi]

Originally Posted by Firebot

But they did give us a break, and all Canadians rejoiced as the media parroted their no name price freeze last year.

People were rejoicing? Most people I heard from about it thought it was a laughable advertising campaign. “We’re gonna freeze our prices now that we’ve already increased them by over 30% and inflation is starting to slow down.”

Grocers are an easy scapegoat, because we have to buy essentials and it's something we do regularly. This is also why we complain about gas prices.

I think they’re easy “scapegoats” because they’ve literally been found guilty of things like price fixing while they have been slowly monopolizing the market over the past few decades.

People are frustrated because they themselves are taking economic hits while these companies aren’t, it’s understandable even though I agree with you that there is currently nothing preventing these companies from maintaining their margins so they aren’t doing anything wrong or even ethically deviating from how they run their businesses in general.

It’s worth noting that many of the same people complaining that they’re being gouged by grocery retailers have historically been and in most cases continue to be oddly quiet over the low wages these businesses have traditionally paid their employees.

So much winning. And we get the weird "the poor will rise up" posts yet nothing actually happens. Everything stays the same.

Nothing of substance is going to happen until a large enough portion of the population can’t afford to eat and we’re nowhere near that, but even in that case targeting grocery retailers wouldn’t deal with the root of the problem of why someone can’t afford groceries, unless of course they worked in that industry.

Meanwhile, we continue to have the milk cartel in charge that draws international attention and which all major political parties promote, we continue to have supply management directly stifling competition and no one bats an eye or even questions it in these types of threads.

I have yet to have anyone provide proof that reducing or eliminating supply chain management would result in lower prices for consumers when the market price people will pay is already established, nor how putting such an important domestic industry in jeopardy will be a good thing in the event of a global crisis. Personally I think a lot of the supply chain management criticism stems from international influence that is more concerned with making themselves money as opposed to benefiting Canadians.

I seem to recall something similar to this happening to another major Canadian industry and many posters being quite up in arms over it.

I feel the anger is misdirected.

I agree, probably for different reasons but hey at least we’re finding some common ground for a change firebot.

[Slava]

^ People who say things like that (“great we’re locking in prices now that they’ve risen 30%) just don’t understand inflation. Inflation today at ~3% doesn’t mean prices decline, it means they only grow at 3% as opposed to growing at 9% like they were last year. Essentially, them freezing prices was a straight up reduction, if you factor in inflation.

Anyway, almost like clockwork, Empire (Sobeys parent company) reported higher revenues this morning and declining profits. Maybe people will see this for what it is now? Probably not.

[blankall]

Originally Posted by Slava

^ People who say things like that (“great we’re locking in prices now that they’ve risen 30%) just don’t understand inflation. Inflation today at ~3% doesn’t mean prices decline, it means they only grow at 3% as opposed to growing at 9% like they were last year. Essentially, them freezing prices was a straight up reduction, if you factor in inflation.

Anyway, almost like clockwork, Empire (Sobeys parent company) reported higher revenues this morning and declining profits. Maybe people will see this for what it is now? Probably not.

Seems like a little from column A and little from column B to me. Yes, inflation exists. Also grocery retailers are making twice at much profit as they did pre-COVID:

https://vancouver.citynews.ca/2023/1...D19%20pandemic.

Also not all price increases are permanent. Notably, when you have supply chain issues, it creates short term increases, or at least it should. There's also been a significant degree of hysteria around inflation, that grocers have used to increase prices.

[Slava]

Originally Posted by blankall

Seems like a little from column A and little from column B to me. Yes, inflation exists. Also grocery retailers are making twice at much profit as they did pre-COVID:

https://vancouver.citynews.ca/2023/1...D19%20pandemic.

Also not all price increases are permanent. Notably, when you have supply chain issues, it creates short term increases, or at least it should. There's also been a significant degree of hysteria around inflation, that grocers have used to increase prices.

I know the media keeps saying that, and I just don't see it in the numbers. Granted, I really only looked at Empire, Loblaw, Metro to see what the biggest grocers are reporting, but the net margins are just not that high.

And saying that however many billions means record profits, therefore they're gouging is disingenuous. The actual dollar amount might be higher, but the margin isn't. It's no different when some movie today is the highest grossing, but it's compared to Gone With the Wind or Titanic when movies were far cheaper. It's meaningless unless you adjust it for inflation, which is hilarious because of course the entire narrative they're trying to run is about rampant inflation!

[iggy_oi]

Originally Posted by Slava

^ People who say things like that (“great we’re locking in prices now that they’ve risen 30%) just don’t understand inflation. Inflation today at ~3% doesn’t mean prices decline, it means they only grow at 3% as opposed to growing at 9% like they were last year. Essentially, them freezing prices was a straight up reduction, if you factor in inflation.

I’m pretty sure most of those people understand inflation they’re just commenting on the timing of that “promotion”. In any event my comment was in response to the statement that people were rejoicing at the announcement, personally I didn’t see that kind of reaction but perhaps you did.

Anyway, almost like clockwork, Empire (Sobeys parent company) reported higher revenues this morning and declining profits. Maybe people will see this for what it is now? Probably not.

There’s a number of factors that can play into those numbers beyond inflation. For example that company just launched a massive grocery delivery network this past summer which is almost certainly going to impact their profits in the short term. Analyzing revenues and profits without any context as to what the business is actually doing isn’t going to paint a very clear picture and IMO shouldn’t be used as a springboard to jump to conclusions.

[Cappy]

Originally Posted by Doctorfever

Ya. The whole “record profits” is kinda misleading.

Every time I get a raise in pay I am also making record profit.

Technically, wouldnt that be record revenue?

[belsarius]

Originally Posted by Cappy

Technically, wouldnt that be record revenue?

Exactly.. a 2% raise in a 4% inflation environment is record revenue, but you are making less than you did last year.

[blankall]

Originally Posted by Slava

I know the media keeps saying that, and I just don't see it in the numbers. Granted, I really only looked at Empire, Loblaw, Metro to see what the biggest grocers are reporting, but the net margins are just not that high.

And saying that however many billions means record profits, therefore they're gouging is disingenuous. The actual dollar amount might be higher, but the margin isn't. It's no different when some movie today is the highest grossing, but it's compared to Gone With the Wind or Titanic when movies were far cheaper. It's meaningless unless you adjust it for inflation, which is hilarious because of course the entire narrative they're trying to run is about rampant inflation!

Can you link your data:

Using data from Statistics Canada, the report says the net income margin on food and beverage retailing has consistently exceeded three per cent of total revenues since mid-2021, more than double the average margin between 2015 and 2019.

https://vancouver.citynews.ca/2023/1...5%20and%202019.

We saw Canada's largest grocers’ food gross margins generally increase by a modest yet meaningful amount over the last five years. This longer-term trend pre-dates the supply chain disruptions faced during the pandemic and the current inflationary period.
The fact that Canada's largest grocers have generally been able to increase these margins—however modestly—is a sign that there is room for more competition in Canada’s grocery industry.

https://ised-isde.canada.ca/site/com...petition#sec08

The only date I can find to support your claim is from the, not so unbiased, retain council. They state that margins are up, but rationalize it by stating that grocery margins are less than other industries.....it's almost like they are comparing different industries of some kind:

https://www.retailcouncil.org/grocery/

[Slava]

Originally Posted by blankall

Can you link your data:



https://vancouver.citynews.ca/2023/1...5%20and%202019.



https://ised-isde.canada.ca/site/com...petition#sec08

The only date I can find to support your claim is from the, not so unbiased, retain council. They state that margins are up, but rationalize it by stating that grocery margins are less than other industries.....it's almost like they are comparing different industries of some kind:

https://www.retailcouncil.org/grocery/

Honestly, I can't really link it because it's a paid system. I would screenshot it and post it, but it's such a pain on this site! I'm fine to just drop it and let people complain about the grocers though...I'm not that invested in this.