In inflationary times, people look for someone to blame for higher prices.
Food is the most pressing purchase consumers make, along with housing costs, so attention has been focused on food retailers.
The seemingly outrageous price increases this last year are hard to stomach and people wonder if the grocery retailers are gouging them.
The ire of consumers is so strong that a parliamentary study has been set up to investigate food price increases and look for price gouging.
The Canadian grocery scene is one of limited competition so consumers suspect gouging. Three chains account for 60 per cent of sales. Loblaws leads with 27 per cent, followed by Sobeys/Safeway at 22 per cent. Third is Quebec-based Metro-Richelieu at 11 per cent.
Causes of higher food prices are well known. Russia’s invasion of Ukraine shot up grain and oil prices. Drought in U.S. states that produce fruit and vegetables raised prices. Reduced cattle herds from drought affected prices as did -related supply chain delays. Floods in B.C. cut berry production.
But the suspicion still remains that grocery chains are gouging us.
One way to examine the possibility of price-gouging is to review publicly available financial statements of the big players.
This column takes a look at Loblaws, owner of Super Store, and Empire Company, which owns Sobeys/Safeways stores.
The measures used to compare include return on equity, return on assets, and profit as a percentage of revenues and revenues. All three are standard benchmarks to measure profitability.
It must be noted, both companies have substantial pharmacy operations, a sector where annual sales growth exceeds growth in grocery sales,
For example, Loblaw’s most recent statement shows five per cent growth in pharmacy with less than one per cent in grocery sales. To that extent, the results are skewed away from groceries.
Profit margins as a percentage of revenues vary. For Loblaws during the years 2017-2021 they ranged from 1.6 per cent in 2018 to 4.13 per cent in 2010, with a 2.71 per cent average.
Note the highest margin was in 2021, the year inflation started to get out of hand,
For Sobeys/Safeway, the profit margin on sales ranged from .07 per cent in 2018 to 2.48 percent in 2021, averaging 1.77 per cent.
For the current year in the first six months, Loblaws showed 3.4 per cent profits on revenues. Sobeys/Safeway had 2.62 per cent profit on revenues. Both are higher than the previous five years - indicating that inflation boosted profits.
Increasing profit margins during inflationary times is extremely difficult as the business contends with ever-increasing costs.
Return on equity, which shows how profitable a company is, was 13.6 per cent for Sobeys/Safeway in this last period, down from 14.05 per cent in 2021 and less than the other four years.
For Loblaws, return on equity this year has been 6.73 per cent —well below the 19.2 per cent last year and below the average of five years.
The percentage of return on all assets so far this year has been 1.28 per cent for Sobeys/Safeway – well below the 4.22 per cent in the last two years. For Loblaws, this measure has been 2.04 per cent, also below the 6.1 per cent of last year. That would indicate inflation is taking a bite out of profits.
Revenues increased 380 per cent to $30.1 billion for Sobeys/Safeway in the last five years, while Loblaws revenues increased 12 per cent to $52.3 billion.
From this, one can conclude gouging may have occurred. Only an in-depth study of the complex grocery business can tell for sure.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
