It was high drama during a recent meeting of what is typically a sedate parliamentary agriculture committee.
With weeks of pressure, MPs managed to get some CEOs of Canada’s largest grocers to appear before the committee to explain their recent profit levels. NDP Leader Jagmeet Singh had been attacking Canadian grocers for days using loaded terms such as “greedflation” and was promising to hold those dastardly corporate heads to account.
Singh arrived at the March 8 committee meeting with a flourish and was carrying a massive stack of papers containing questions from 2,000 Canadians concerned about grocery prices. The stage was set for fireworks and some top-quality political theatre. Alas, Mr. Singh’s carefully crafted production flopped as Loblaw president Galen Weston and other representatives calmly explained how the grocery prices were beyond their control.
Inflation is pressuring Canadians on every front. Fuel and utility prices are rising. Rents in some regions have increased dramatically, and food everywhere has become more expensive. Rising food costs hit everybody. It’s not as if people can stop consuming food until prices become more reasonable.
Retail grocers are on the front line with consumers and thus tend to get the brunt of the ire when prices rise. People only see the price at the checkout counter and don’t see the supply chain and rises in input costs for food production and distribution.
Wealthy and well-known Canadian businesspeople such as Galen Weston make easy targets for politicians who like to engage in the politics of envy. How dare those CEOs enjoy record profits while average Canadians struggle to pay the bills!
While the profits of grocers are hitting record levels, the profit margins haven’t risen and this is an important distinction. While profits sit in the hundreds of millions for major grocery chains, the profit margins remain at a slim 4.5 percent to 6 percent level. Food service businesses from the grocery to the restaurant industry traditionally have some of the lowest profit margins of any sector, yet they take the brunt of the anger when prices rise on items.
What does that question even mean?
How much indeed? Should grocers try to set their margins at one percent? Two percent? If input costs rise, those margins could quickly turn into a loss. Layoffs, store closures, and reduction in pension growth for investors in the grocery business won’t help anybody.
If grocers had a particularly good year and their profit margins hit seven percent, should the state step in and claw it back? That seems to be what Singh is implying. What better way could there be to chill investment in the business and reduce competition even further? With even fewer stores to choose from, Canadian consumers would pay even higher prices.
While only a small number of companies provide the majority of Canada’s retail food services, they still are quite competitive with each other. If a person travels from store to store, they can comparison shop and find significant price differences on comparable items. We would be well served with more competitors in the market, but we can’t pretend the current ones are fixing prices.
Payroll and bookkeeping services enjoy profit margins of 35 percent. Supply chain issues don’t bind them and the costs of their services can float quickly and easily with inflation. Shall they be reined in?
Jagmeet Singh doesn’t appear to be interested in addressing some of the other factors leading to high grocery prices either. How much has the carbon tax contributed to food production and transport costs? What about the ongoing war in Ukraine putting upward pressure on commodity prices? Environmental regulations are pressuring agricultural producers, as are labour costs. High government borrowing has been devaluing Canadian currency as well, leading to lower purchase power for imports.
There is no doubt that inflation is making life difficult for Canadians, but trying to blame grocers for the problem is a red herring.
Jagmeet Singh had hoped to score some political points in his attack on grocers at the committee meeting. He only succeeded in shooting himself in the foot, and Canadian consumers are no better for it.
