You’ve probably heard that Canada is experiencing skyrocketing inflation. Last month, the media was talking about how the inflation rate of 5.7% was the highest the country has seen in over 30 years.
One factor driving inflation is the price of oil, which has jumped more than $30 a barrel between February 2021 and February 2022. Much of that increase is influenced by the war in Ukraine and the related sanctions against Russia, which is the second largest oil exporter in the world, or rather it was as of 2020.
And as the price of oil increases, so will the price of fuel derived from oil, which, in turn, affects the prices of goods delivered via transportation methods using oil-derived fuels.
Another factor driving inflation that’s also related to logistics is supply chain shortages.
The COVID-19 pandemic has disrupted the global supply chain, such as through reduced air transportation increased oversea cargo demand and longshore staffing issues (such as illness and isolation) have created a backlog in unloading and distribution.
As well, given that Russia is the 3rd largest producer of wheat in the world and Ukraine is the 8th largest (2020 statistics), the war has impacted wheat prices, driving up global prices of prepared and baked goods.
Anyone who has bought groceries in the last month or so has probablys seen significant increases at checkout.
But there’s one factor that the media doesn’t seem to be covering in their reports on inflation: corporate profits
I decided to go through the annual financial reports for two corporations that own Canada’s largest grocery chains: Loblaw and Empire.
Loblaw Companies Limited operates such grocery chains as Loblaws, Real Canadian Superstore, Extra Foods, and No Frills, as well as Shoppers Drug Mart, which sells various grocery items.
Empire Company Limited operates such chains as Sobeys, Safeway, IGA, and FreshCo.
What I found was that both of these corporations reported massive profits last year compared to previous years.
Loblaw, for example, reported net earnings of $1.976 billion in 2021. Empire reported significantly less but still significant: $701.5 million—their fiscal year ended in May 2021, while Loblaw’s ended in December.
Even though their posted profits varied widely, these profits were the highest both companies had seen going back at least 10 years.
Now keep in mind, that these profits occurred prior to the inflation rates reported in February. That being said, inflation has been increasing since mid 2020, and it jumped in the second half of 2021.
It’ll be interesting to see what their profits look like when they publish their 2022 annual statements.
I mean, if they’re going to make massive profits during a pandemic-fuelled recession, why wouldn’t they profit off the highest inflation the country has seen in generations?
Remember, the price of the groceries you buy are affected by all sorts of cost inputs: the price of the goods purchased from wholesalers, transportation costs, utility costs, and wages for the workers stocking the shelves and ringing through the purchases.
But another cost that’s rarely discussed is profit.
Profit, basically, is the amount of revenue leftover after expenses. If you have profits, you’re charging customers more for the products they buy than it costs you to make those products available.
If you’re making $2 billion in profits (or even $700 million), you’re charging your customers billions more than it costs you to make the products available that they’re buying.
And that’s going to make the groceries you sell more expensive.