By Sylvain Charlebois
and Samantha Taylor
Accusations of gouging in the food industry have reached an all-time high. According to a recent survey, 68 percent of Canadians believe food corporations are taking advantage of the inflationary cycle to increase prices, and it’s not just in retail.
Class-action lawsuits have been launched against the beef industry in Quebec and British Columbia. And many trade groups and politicians are asking the federal government to investigate rising prices.
We will hear consumer complaints about inflated prices in different sectors, such as automotive, telecommunications, pharmaceuticals and airlines.
But food is different. The stakes vary for everyone. The balance between profits and profiteering is incredibly delicate. Energy and food are the most volatile elements when measuring inflation. For food, that’s particularly true essentially because the category is easily affected by weather, labour and geopolitics.
Half of the products you see in a grocery store are perishable and rely on low temperature-controlled supply chain networks. That alone makes things more complicated than moving car parts or wood around. Getting food from farm to store, or restaurant, is a battle of time and pressure every day. Failure means more waste, more problems, more costs and higher food prices.
It’s easy to blame food companies. Grocers get most of the backlash from consumers due to their exposure. In recent weeks, many people have criticized grocers for recording historically high profits and accused them of taking advantage of the current inflationary cycle.
Grocers, meanwhile, have desperately tried to stay ahead of the market and beat the unpredictable nature of what’s happening. But when your carry 18,000 to 20,000 products, it’s not that simple.
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A look at the financial performance of Canada’s three largest grocers shows that the numbers have been consistent for the most part.
Canada’s largest grocer, Loblaws, has posted consistent gross margin and profit ratios since 2017. While gross margins have varied between 29.35 and 31.47 percent, profits have been anywhere from 1.64 to 3.53 percent.
For Empire/Sobeys and Metro, the results are similar. Gross margins for Empire/Sobeys varied between 23.97 (2017) and 25.47 percent (2021), and profits ranged from 0.67 (2017) to 2.48 percent (2021). For Metro, similar variations occurred except in 2018, when profit was 11.93 percent, likely due to Metro’s acquisition of the Jean Coutu Group of drugstores.
Acquisitions will skew how these companies perform financially, and we’ve seen many acquisitions in recent years. We need to keep that in mind.
So profits and margins are slightly higher. The difference, however, is relatively small when compared to some banks and other major economic players. We also need to keep in mind that many Canadians will benefit from these decent financial outcomes as most pension plans in Canada own shares in at least one of the big three grocery stores.
In fact, evidence of ‘greedflation’ in food retail in Canada is weak at best. But prices in some food categories have behaved unreasonably in recent years, so we shouldn’t think greedflation doesn’t exist.
Accepting that greedflation exists and accusing companies of being abusive is easy. But it gets challenging to set thresholds. How much is too much? Where’s the line between good business practice and greed?
And some consumers are willingly paying $28 for steaks at the grocery store, pushing prices higher for the rest of us.
Further investigation is warranted. Other supply chain links are harder to analyze since many companies are privately owned and contracts aren’t public. And consumers have every right to be doubtful, considering we’ve seen our share of price-fixing scandals in recent years. The bread price-fixing scheme is just one example.
Everyone would gain from looking at the more obscure sectors of the food industry, beyond retail, to better understand how our food supply chain works. A government-led inquiry would benefit us all, but the focus would need to be narrowed. The food industry is just too vast to make any analysis worthwhile.
It’s also worth noting that Canada’s percentage of spending on food consumed at home is one of the lowest in the world. According to the World Economic Forum, the average Canadian consumer spends 9.1 percent of their total budget on food. In the United States, it’s about seven percent. In 1950, our percentage was over 30 percent, so we’ve come a long way.
Food inflation will peak soon in Canada – or may have already. Food prices will continue to rise but at a much slower pace in the coming months.
It’s important to keep in mind that food inflation is a normal economic occurrence. To properly equip the industry so Canadians get quality products at consistent pricing, prices should continue to rise. However, in recent months the increases have been unsustainable for many families. Food inflation’s ideal rate is between 1.5 and 2.5 percent, which is what we’ve seen over the last 20 years, except for the last year.
Canadians have a strong food industry, but food affordability has become a challenge for many of us. However, we need to look at greedflation rationally before slinging mud at everything and anything.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University. Samantha Taylor is a professor in Accounting at the Rowe School of Business at Dalhousie University.
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