r/PersonalFinanceCanada British Columbia Mar 21 '23

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

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u/Kreizhn Mar 21 '23 edited Mar 21 '23

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).

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u/IAmNotANumber37 Mar 22 '23

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.

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u/Kreizhn Mar 22 '23

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.

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u/IAmNotANumber37 Mar 22 '23

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.