The grocery stores, profits, they eat it

I place the order on Saturday, and every time I look at the invoice, I am amazed!.

The grocery stores, profits, they eat it

I place the order on Saturday, and every time I look at the invoice, I am amazed!

What baffles me even more are the profits of the grocers. We are told that food costs more because fertilizer costs more, because gas costs more, because labor costs more, and who knows what other justifications. However, the profits of the big banners continue to swell. So the question arises: who is filling their pockets?

In early May, Loblaw Companies reported profits up 40% from the same period last year. Provigo's parent company saw food sales increase 2.4% to $8.7 billion last quarter.

Metro is also going to the checkout. Despite inflationary pressures and salary increases, the chain recorded a net profit in its second quarter of $198.1 million, up 5.3%. At Empire, which owns the IGA banner, profits also climbed 5%.

Cherries on the sundae

The reality is relentless, price increases are currently benefiting supermarkets and their shareholders. Still by way of example, the title of Metro has appreciated by around 18% over the past year. Meanwhile, the Toronto Stock Exchange advanced only 4%.

Are some companies abusing the situation? A recent report by the Canadian Center for Policy Alternatives concludes that the current inflation rate in Canada would be 25% lower without the extra profits companies have made by raising prices.

The Russian invasion of Ukraine sent wheat prices skyrocketing. Certainly, transport costs have exploded, and the shortage of labor calls for wage increases. But can all of these factors justify the $8 box of Corn Flakes? To ask the question, is to answer it.

The same box of Corn Flakes costs $2.26 less in the United States. And hold on tight, this calculation takes into account the exchange rate.

When we compare...

What justifies such high price increases at the supermarket? I listened carefully to Loblaw's conference call with investors. A financial analyst asked executives what justified price hikes in supermarkets.

Richard Dufresne, the chain's chief financial officer, said grocery stores set prices against the competition, not inflation.

"We're not trying to run our business on inflation," he said, noting that the company compares itself to competitors when setting prices.

Low competition

The problem of inflation lies partly in competition, which has weakened over the past twenty years. Generally, the prices remain low when there is competition between several players. Conversely, when a handful of firms monopolize the market, prices often rise faster than costs.

When the consumer has limited choices, companies are much less embarrassed to raise their prices and their profits. In the food sector, the concentration movement is not new. In the 1990s, the Steinberg chain was dismantled in favor of Provigo, Metro and IGA. Then in 1998, Provigo was sold to Loblaw with the approval of the Caisse de dépôt et placement du Québec.

Towards more focus

In 2005, Sobeys-IGA became the owner of the Rachelle-Béry stores. More recently, in 2017, Metro took full control of Adonis, before buying the entire Première Moisson chain in 2019. At the same time, IGA became the main shareholder of the Asian discount grocer Kim Phat.

With these food Gargantua gobbling up the competition one plate at a time, it's no surprise that prices are soaring. Like what, the problem of inflation is a cake: several elements mixed, and as a cream, competition.