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Jagmeet Singh says grocery chains are ‘profiteering’ amid inflation. Is it true?

Click to play video: '‘Excess profits tax’ needed for affordability of living: NDP’s Singh' ‘Excess profits tax’ needed for affordability of living: NDP’s Singh
WATCH: ‘Excess profits tax’ needed for affordability of living: NDP’s Singh – May 11, 2022

NDP Leader Jagmeet Singh is calling out Canada’s major grocery chains for making record profits amid soaring inflation, which he calls “profiteering.”

Speaking to Global News Radio 640 host Greg Brady Tuesday, Singh accused corporate grocers of “gouging” Canadians with marked-up food prices while still reporting higher profits, which he says doesn’t add up.

“If you’re increasing prices to offset increased costs, they would have the same level of profit,” he said. “But we’re seeing a significant increase in their profits.

“It shows that they’re just gouging Canadians at this difficult time.”

Read more: Global food, fuel prices won’t ease until 2024 due to Ukraine war: World Bank

On Wednesday, Singh called for an “excess profits tax” on major grocery chains and oil and gas companies, expanding the Liberals’ plan to place a higher 18 per cent tax on bank profits exceeding $1 billion.

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The NDP say the revenue collected from their proposed tax would help raise the annual GST tax credit and Canada Child Benefit by $500 each per year.

“Why is it that wealthy companies get to make more, and families have to suffer, and why do governments allow that to happen?” he asked.

“The whole point of government is to level that, to ensure companies aren’t gouging or exploiting a difficult time.”

Profits have been rising

A look at the latest earnings reports from the three major grocery chains — Loblaw, Empire Co. and Metro — shows sales and profits have indeed risen, which CEOs have attributed to higher food inflation and “cost and margin discipline.”

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Loblaw saw net earnings rise nearly 40 per cent compared to last year in its latest quarter, to $437 million, while sales rose just 3.3 per cent to $12.26 billion for a profit margin of 3.56 per cent — up from 2.68 per cent in 2021.

The grocery and drugstore retailer said last week it will now pay shareholders a quarterly dividend of 40.5 cents per share, up from 36.5 cents per share.

A spokesperson for Loblaw pinned the increased profits on higher-margin sales like cosmetics purchased at Shoppers Drug Mart locations, adding grocery sales are increasingly being driven by discount house brands as consumers try to curb their spending.

Read more: Canadian shoppers moving to discount stores as inflation soars: Loblaw

Empire, which owns Sobeys, Safeway and FreshCo among other brands, reported a quarterly profit in March of $203.4 million, up 15.4 per cent from $176.3 million a year earlier. Its profit margin compared to sales, which rose by just 5.1 per cent, climbed from 2.51 per cent last year to 2.75 per cent.

That profit amounted to 77 cents per diluted share, which president and CEO Michael Medline called “our highest in memory” on an earnings call in March. He praised the company’s ability to keep operating costs low amid “choppy waters” that have disrupted supply chains, including fuel costs and the flooding in British Columbia last fall.

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As for Metro, it reported a second-quarter profit of $198.1 million, up 5.3 per cent from $188.1 million a year earlier, as sales gained 1.9 per cent. The Montreal-based grocery and drugstore retailer’s profit margin sits at 4.63 per cent, up slightly from 4.49 per cent last year.

Metro president and CEO Eric La Fleche said in January that the company was actually using its higher profit margin to absorb some of the higher costs from food producers to keep shelf prices stable.

Empire and Metro both declined to comment on Singh’s remarks when contacted by Global News.

Are grocery chains really profiteering?

Those profit margins have risen significantly since before the pandemic.

In 2019, Empire’s profit margin was just 1.17 per cent, while Loblaw’s was 1.86 per cent and Metro’s was 3.28 per cent.

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In Empire’s case, that marks a 135-per-cent increase over the course of the pandemic. Loblaw’s profit margin has soared 91 per cent, and Metro’s shot up 41 per cent.

Yet James Brander, an economics professor at the University of British Columbia’s Sauder School of Business, said the increases likely do not rise to the level of profiteering, which would suggest the higher profits are due to illegal or nefarious practices.

Read more: High food costs shaping grocery shopping habits and buying patterns, Metro CEO says

“I wouldn’t view this as profiteering and I wouldn’t view it as unusual, and I certainly wouldn’t think that it calls for government intervention,” he said.

“Businesses are in business to make profits, and they are focused on growth, so that’s what they’re trying to do.”

Brander said he also wouldn’t support Singh’s idea of an “excess profits tax” on grocery chains, arguing it would drive down incentives to keep costs down and retain staff.

“We want the producers of food to be investing more in producing food,” he explained. “And we’ll get that by having grocery stores promise to spend more on that food. You don’t get that by limiting their profits.”

In a statement, a spokesperson for Deputy Prime Minister and Finance Minister Chrystia Freeland’s office said the government remains focused on “building a fairer and more inclusive economy,” which includes ensuring the wealthiest Canadians and businesses pay their fair share in taxes.

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Click to play video: 'Why global food and fuel prices may not ease until 2024' Why global food and fuel prices may not ease until 2024
Why global food and fuel prices may not ease until 2024 – May 1, 2022

What does this mean for grocery prices?

Back in December, the Canada Food Price Report from Dalhousie University predicted Canadians would spend between five to seven per cent more on groceries in 2022.

That was before record inflation and the war in Ukraine drove prices up even further. Statistics Canada reported last month that grocery store prices rose 8.7 per cent year-over-year in March, the fastest annual rate since 2009, aided by the largest annual increase in dairy and egg prices since February 1983.

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Four-fifths of respondents to a Leger poll released in March said they had started or planned to buy cheaper items at the grocery store to save on food bills and were cutting back on food waste.

Read more: Most Canadians are cutting back their food spending as inflation soars: poll

While Metro said its food prices inflated by just under five per cent, compared to 3.5 per cent in the most recent quarter, Loblaw said its consumer price index rose 7.5 per cent after hitting just 0.9 per cent the year before.

Both companies have noted that sales of their discount house brands have increased as customers look to curb spending.

Empire’s Medline said the company is focused on its supplier relationships to ensure competitive pricing for customers as inflation continues to push up the cost of goods. He also noted that higher fuel costs are also starting to make an impact on shipping expenses.

— with files from the Canadian Press

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