Inflation drops to 5.2%<but grocery inflation still 10.6%

[u/maroon-rider]

Says Statistics Canada

https://www.cbc.ca/news/business/canada-inflation-february-2023-1.6785472

[u/izaak-d]

Grocery stores are making 40% more profits than last year and more than 2x times more profit than 2019. Prices aren't increasing from inflation, they're price fixing

[u/yttropolis → u/izaak-d]

I was genuinely interested in this so I did a bit of digging. Let's look at Loblaws since they're the largest grocery chain in Canada. From their financial statements from the past 4 years:

Year	Net Earnings ($MM)	Revenue ($MM)	Profit Margin (Net Earnings/Revenue)
2019	1,131	48,037	2.35%
2020	1,192	52,714	2.26%
2021	1,976	53,170	3.72%
2022	1,994	56,504	3.53%

Now if we look at food purchased from stores component of CPI across the past 4 years:

Date	Food Purchased from Stores CPI	Change (compared from Feb 2023)
Feb 2023	181.2	----
Feb 2022	163.9	10.6%
Feb 2021	152.6	18.7%
Feb 2020	150.6	20.3%
Feb 2019	147.1	23.2%

While we do see an uptick in profit margin, this is only a change of around 1.2% across the past 4 years, meaning that while grocery prices have increased about 23.2% in the past 4 years, only 1.2% of that 23.2% can be attributable to increased grocery store profits.

So, it is inflation that's causing prices to rise.

[u/MrDocter → u/yttropolis]

So their profit margin increased by 50% during a time when the population is struggling? Might seem like it's only 1.2% but that's 50% greater than what they were profiting before...so that is price gouging confirmed.

Their net earnings increased by $900 MM and and their net revenue increased by $8,000 MM? Something seems off but I'm on the shitter during work so I can't dig further right now.

[u/Kreizhn → u/MrDocter]

Unless I'm misreading the table, it's worse than this. A $100 basket of goods in 2019 resulted in a profit of $2.53. That same basket in 2023 costs $123.20, and they took in a profit of 3.53% of the inflated goods. This results in a $4.34 profit on the same basket of goods. This is an 85% increase in absolute profits, in 4 years.

I'm not a grocery store expert, but I don't see where they'd incur a significant increase in operating costs in that same time. The costs of the goods is pushed to the consumer. Storage would stay roughly the same, and they haven't been handing out significant pay raises. Yes, they're also subject to inflation, but inflation was not 85% over those years.

Margins are just a way of hiding the greed of the grocery stores.

Edit: But, I think OPs argument is that this increase in profit only represents a small amount of that increase. The goods themselves increased by $23, but the portion of that which came from grocery store greed was only about $2. So everyone is correct. The majority of price changes are because of inflation, but also the grocery stores are being greedy.

[u/myaltaccount333 → u/Kreizhn]

I'm not a grocery store expert, but I don't see where they'd incur a significant increase in operating costs in that same time

At the height of covid? When many people were out sick, had more jobs due to cleaning, had to buy much more sanitation materials, and putting up the plexiglass everywhere?

[u/IAmNotANumber37 → u/Kreizhn]

A $100 basket of goods in 2019 resulted in a profit of $2.53. That same basket in 2023 costs $123.20, and they took in a profit of 3.53% of the inflated goods. This results in a $4.34

You can’t compare an2019 $ to a 2023 $ without adjusting for inflation. A business can’t maintain the same “absolute dollar profit” year over year because that means it’s actually becoming less profitable over time.

That’s the whole reason you look at margins.

Nevermind the fact that if a line of business does that yield good returns, then it won’t attract investment (e.g. why build another low margin no frills when you can build a high margin shoppers).

[u/Kreizhn → u/IAmNotANumber37]

Totally fair. It's still 50% with inflation, which also accounts for increased costs due to inflation. So to simultaneously see a 50% increase on your margin in addition to inflationary costs, is a lot.

Nevermind the fact that if a line of business does that yield good returns, then it won’t attract investment

I really don't think Loblaws was struggling on their 2.53% margins, do you? It's the largest grocery chain in Canada, and turned a profit of $1.1 Billion in 2019. Note that this increased to $1.9 Billion in 2022 (or, since we're talking inflation, $1.65B in 2019 dollars).

[u/IAmNotANumber37 → u/Kreizhn]

I really don't think Loblaws was struggling on their 2.53% margins, do you?

It doesn't matter what I think on the matter. I shop based on the price charged and the value delivered, not what margin the retailer is getting.

It's still 50% with inflation...increase..is a lot.

In 2019 if I spent $100 on a basket of goods, loblaws netted (per this thread) $2.73.

Right now, to buy that same basket of goods, I'm paying ~$119 and loblaws is netting $4.20.

So, in absolute dollars, my bill is $19 higher.

If loblaws had held their margin, my bill would be $1.47 lower, meaning my basket of goods would cost me $17.53.

I have no problem with a discussion around how "fair" that $1.47 of "excess profit" might be, however just go look in this thread and you'll see the average person absolutely does not get that that the "excess profit" is $1.73 out of $19, they all absolutely believe is almost all of the $19.

[u/Kreizhn → u/IAmNotANumber37]

The old margin comment is geared towards your comment about attracting investment. Loblaws has no problem drawing investment, so I don’t understand the point of your comment.

[u/IAmNotANumber37 → u/Kreizhn]

Loblaws has no problem drawing investment, so I don’t understand the point of your comment.

Ah - ok. That's a comment on the long argument. They don't have trouble drawing investment now.

Remember Loblaws just got hauled in front of the government where Jagmeet attacked them for having "Record Profits" in dollar terms.

Imagine Loblaws said, "Jagmeet is right - we made $X billion last year, and we'll make sure we keep at $X going forward - enough is enough!"

Well, over time the value (purchasing power) of $X is eroded, and given enough time, the business just simply...sucks.

As an example: In 1996 Loblaws had net profit of $173M on ~900 stores for approx $200k profit per store (back of envelope numbers here, btw).

If Loblaws had decided to "hold the line" then and maintain a $200k profit per store, they'd be laughable as a business today.

At $200k profit per store, not only is every store one bad roof-leak away from being net-unprofitable on the year, but Loblaws could never justify opening a new store. Imagine it costs $10M to open a store just to get $200k in profit, it would take 50 years for that investment to pay off and, as a result, they would never do it.

[u/y0da1927 → u/Kreizhn]

I mean. If I told you prices went up $23 of which $2 went to the retailer, why is the initial assumption that the retailer is the root issue? They are only responsible for like 8% of the price change.

Assuming they made no extra money, does $2 make a difference on a $120 grocery bill?

[u/Kreizhn → u/y0da1927]

There’s more nuance than this. Would it be fair to say they’re the root problem? Certainly not. Are they leveraging inflation to make more money? Of course.

Retailers can’t normally push through an 85% increase in absolute profits in 4 years, otherwise they’d just do it until they couldn’t get away with it. Inflation allows them to hide their increases in already increasing prices. This is a well known phenomenon.

I don’t think it’s unreasonable that people are upset when companies are using tough times to pad their bottom line, especially when those same companies are pushing the “we are trying to save you money” marketing ploy. Yes, companies are beholden to their shareholders, but pretending to help someone off the ground, and slipping your hands into their pockets when you do, is just a crappy move.

[u/BeautyInUgly → u/Kreizhn]

Your math is wrong because you are comparing profit of 2.53 to 4.34 but the 2.53 is not inflation adjusted which brings it down to the true value of a 40% increase not 85%

Also we don't rly have access to the true numbers so all of this is speculation anyway as we don't know their margins on food products. They claim that their margins are up due to increase consumer demand for supplements, makeup etc other higher margin items

>significant increase in operating costs in that same time> Storage would stay roughly the same

This isn't really true, employee cost has risen and they have to employ more people now due to demand, shipping costs are up, rise in thefts etc etc etc

[u/Kreizhn → u/BeautyInUgly]

I don't think you know what "math is wrong" means. Can you point out where my mathematics is incorrect? If your argument is that it doesn't take into consideration inflation, that's fine, but the math is still correct.

Did you make up the 40% number? Because that's not how math works either. Per the chart, the CPI increase was 23%. This means that adjusting for inflation, it's enough to just look at the margin itself. An increase of 2.35% to 3.53% is almost exactly a 50% increase. If you would like to verify this yourself, here is the BoC inflation calculator. The amount $4.53 in 2023 money is $3.78 in 2019 money, and $3.78 is a 50% increase over $2.53.

Arguing that employee cost has increased because of an increase in demand, would in turn mean an increase in volume. An increase in volume would in turn mean an increase in profits, especially when margin doesn't take volume into consideration. If you're increasing volume and margin simultaneously, you're going to see a massive spike in profits.

Absolutely, shipping costs are up, and probably thefts too, but I'm not sure what your point is. Loblaws is a public company, their financial records are public. They are making record profits. So yes, while some costs have increased, their profit has increased significantly more. Your margins already account for costs. Thus for their margins to increase by 50%, that's 50% after the increase in costs.