The chief executive officers of Canada’s three largest grocery store chains testified before a House of Commons committee last week saying that their record profits have nothing to do with the never-ending increases in food prices. Canadians have been feeling the pinch at the grocery checkout since the beginning of the COVID-19 pandemic three years ago, and it has only gotten worse since then. According to Statistics Canada, the national inflation rate has started to drop off and was around six per cent last month. However food inflation is up to over 11 per cent from this time last year.
CEOs Galen Weston from Loblaws, Michael Medline from Empire Foods, Eric La Flèche from Metro each said that their businesses operate on very slim margins, and that supplier increases are to blame. Their record profits come from specific niche lines like cosmetics, clothing, and financial services, not groceries. The three CEOs are not completely incorrect with the root causes of food inflation, but they are not completely correct either.
The global pandemic and Russia’s illegal invasion of Ukraine, disrupted global supply chains, contributing heavily to market volatility. Specific commodities like chicken have been impacted by a potent strain of Avian Flu that has devastated poultry farms in some areas of North America. Citing increased costs, the Canadian Dairy Commission approved two price increases for milk, resulting in an extra eight cents per litre for dairy farmers. These and more events have contributed to the higher wholesale costs to retailers.
Before the pandemic, it was frequently reported that suppliers were being squeezed by large companies, including the grocery chains, Walmart, and other retail operators, for lower wholesale prices. This led even to some products being temporarily removed from stores due to the retail chain’s demands not being met. What changed in three years? Did producers finally get the upper hand on retail sellers? No. Supplier costs were passed on, but margins (the difference between wholesale and retail prices) increased as well. It was reported in mid-2022 that in addition to increased supplier costs, margins were up on grocery items. In fact, Canadian grocery chains average a four per cent margin, while similar chains in the United States average two per cent.
The grocery chain CEOs said they are telling the truth about the high prices, that Canadians can believe them. That is easier said than done. In 2015, Loblaws Companies Limited and George Weston Limited – both run by Weston – received immunity in exchange for cooperation in a Competition Bureau investigation on alleged price fixing for packaged bread products. Empire, Metro, and Walmart (among others) are still under scrutiny in that ongoing five-and-a-half year investigation.
Canadians are steering towards a tough 2023. Unless you are a government employee, wage increases have not kept pace with inflation. Solutions proposed to reign in food inflation like taxing grocery store profits will only be passed on to consumers, no help to anyone. Canadians cannot expect grocery price altruism from large corporate entities.
Until the supply chain issues are resolved, or increased grocery supplies are available, Canadians will have to mitigate inflation by doing more with less, or in some cases, less with less.