Thank you.
I already provided my disclosures about not consulting, not being partisan and not belonging to any political party. I'll cut right to the chase.
I've taught the strategy course for the past 35 years at Carleton, where we analyze individual companies using the audited financial statements, looking at things like gross profit margin, net profit margin, ROIC, inventory turnover and so forth. In that time, teaching it five times a year over 35 years, I've estimated that my students and I have looked at 3,000 to 4,000 corporations, or 10 to 15 per course.
Why I'm telling you about this is that we look at trend data. We've also looked at Loblaws, Metro and Sobeys. Moreover, inter-industry comparisons have been published from time to time in Canada and the U.S. that repeatedly demonstrate that grocery retailing is a notoriously low profit margin industry compared to most other industries.
However, before turning to the issue at hand, I want to address this overarching narrative that has emerged in recent times concerning corporate profitability, because some parliamentarians have criticized the profitability of certain select corporations. I would suggest, in my judgment, that this is a mistake on two levels.
First, Canada and other OECD countries do not regulate wages or prices, and Parliament does not regulate profit margins. There's no act of Parliament that does that. That's the job of competition.
Secondly, the late Harvard economist, Joseph Schumpeter, and Harvard strategy professor Michael Porter have taught us that firms exist to create something of value. This can occur only if firms generate sufficient resources to cover their costs. They have to be profitable.
Indeed, I saw that as a former banker. From time to time I had to put businesses into bankruptcy because they didn't make a profit. They couldn't cover their costs. All the employees were laid off. That's not a good thing.
Where I'm going with this is.... I understand your concern about profitability. Some argue that it's the rate or the degree of profitability. To address this claim, we have to examine the actual evidence-based, audited financial statements of companies that have been so accused.
For the fiscal year ending 2021, the net profit margin for Loblaws was 3.7%. For Empire-Sobeys it was 2.7%, and for Metro it was 4.5%. These net profit margins may seem very high to people who are unfamiliar with evidence-based analysis. In fact, retail grocery store net profit margins are unbelievably low—absolutely and relatively—compared to the double-digit profit margins in pharma, banking, beverages, automotive manufacturing, chemicals, computers, construction, electronics, entertainment and health care products. I haven't touched all of them.
Why the confusion? The critics are looking only at the end of the food chain and seeing the retail prices of the grocery retailers increasing, and then leaping to the conclusion that the retailers caused the price increases. They didn't, but how do we know?
We turn to StatsCan's empirical evidence. I provided to you an infographic from StatsCan, which was published only in December. It's for wheat-based products only, but most of those inputs identified by StatsCan in fact are used throughout the food chain. Diesel, pesticides and trucking costs each show stunning increases. It's a 34% increase for pesticides, 28% for energy and 20% for trucking.
I'll be wrapping up now.
There's another way to test the allegation of what's being called “greedflation” by those who don't accept the StatsCan data. We can examine food inflation rates only—not general inflation, only food—in other OECD countries. If the grocery retailers in Canada were raising their prices beyond the price increases in their input costs from farmers or wholesalers, it would show up in higher food inflation rates in Canada relative to other OECD countries.
Fortunately, the OECD has just released very fresh comparative food inflation data from only two weeks ago. It shows that food inflation in Canada is not above but below the OECD average. It's below France's, below Germany's and below the U.K.'s.
In conclusion, the evidence-based research from the audited financial statements of Canadian grocery retailers, the statistical data from Statistics Canada and the statistical OECD food price inflation data conclusively demonstrate that the claim of “greedflation” or excessive price increases by the grocery retailers is factually without any foundation at all.
Thank you.