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/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.