Prices inflated by grocers? Really ?

Accusing certain food companies of “escroflation” seems easy, but one must differentiate between sound business practices and abuses within the food industry.

Fraud accusations in the food industry have reached an all-time high. According to a recent poll, 68% of Canadians believe that food companies are taking advantage of the inflationary cycle to raise prices, and not just at retail. With Quebec and British Columbia now having class action lawsuits against the beef industry, many trade groups and politicians are calling on the federal government to investigate.

We will hear from consumers complaining about overly inflated prices in different sectors, such as automotive, telecommunications, pharmaceuticals and airlines. But in the food sector, the balance between profits and food security remains incredibly delicate. Besides energy, food becomes the most volatile element when measuring inflation, primarily due to how easily commodities get affected by weather, labor and geopolitics. . Half of the products found in a grocery store are perishable and rely on cold supply chains. Transporting food from the farm to the store or restaurant remains a daily battle. A problem means more waste, more costs and higher food prices.

Easy to blame food companies. Retailers like Provigo, IGA and Metro are bearing most of the consumer backlash because of their role. In recent weeks, several people have criticized grocers for posting historically high profits and accused them of profiting from the current inflationary cycle. Looking at the financial performance of our three largest grocers, we notice that the numbers have remained constant for most of them.

Our largest grocer, Loblaw, has posted consistent gross margin and profit ratios since 2017. While gross margins have ranged between 29.35% and 31.47%, profits range between 1.64% and 3 .53%. For Empire/Sobeys and Metro, the results are similar. Empire/Sobeys gross margins ranged between 23.97% (2017) and 25.47% (2021) and profits ranged from 0.67% (2017) to 2.48% (2021). For Metro, we observe similar variations except for 2018, where profitability reached 11.93%, probably due to the acquisition of Jean Coutu pharmacies.

Indeed, profits and margins have increased, but very little. Compared to banking institutions and other major players in our economy, the difference remains relatively small. We also have to keep in mind that many Canadians will benefit from these decent financial results, as most pension plans in Canada own shares in at least one of the big three food retail companies.

Still, any evidence of scams in the food retail industry in Canada is weak. This does not mean that the scam does not exist in food.

Prices for some product categories are surprising. But what is the acceptable threshold for all of us? Essentially, too high a price looks like what exactly? Some consumers are still voluntarily paying $28 for steaks at the grocery store, driving up prices for the rest of us. Supply and demand.

Besides the detail, other links in the supply chain remain more difficult to analyze, as many private sector companies do not disclose the contents of their various contracts. Further investigation would therefore be warranted and consumers have every right to be skeptical, given that we have had our share of price-fixing scandals in recent years. The bread pricing system provided us with a good example. Everyone would benefit from looking at different sectors of the food industry, beyond retail, to better understand how our food supply chain works. A government-led investigation would benefit everyone, but it should be limited in scope, as the industry is complex.

Food inflation will soon peak in Canada. Food prices will continue to rise over the next few months, but at a much slower pace. The year 2022 was supposed to allow post-pandemic recovery, but Russia had other plans. It should be kept in mind that food inflation remains a perfectly normal economic phenomenon. To properly equip the industry, so that Canadians can get quality products at consistent prices, prices must continue to rise. The past few months, however, have been unbearable for many families. The ideal rate of food inflation should be between 1.5% and 2.5%, which we have been obtaining for the last twenty years, with the exception of the last few months.

Canadians have a strong food industry, but food affordability has been a challenge for many of us. But we need to look at “escroflation” rationally before accusing anyone, anyhow.