#inflation | Greg's Blog

The Price of Tea in… Canada

As inflation continues to grip most of the free world thanks to COVID, Russia, China and our own western governments’ decisions to expand the money supply to record levels in an effort to combat the negative effects of the first three scourges on western economies, very few giant box businesses have NOT chosen to take advantage of the situation to bolster the bottom line. None is more prevalent than the oligopoly held by the three major players in the Canadian grocery business. Loblaw’s Companies Ltd. (Superstore, Loblaws, Fortinos, No Frills), Empire Company Ltd. (Sobeys, Freshco, Farm Boy) and Metro (Metro, Food Basics) have seen profits explode far beyond the rate of inflation or the normal margins for the grocery business.

What gives? Yes, we all agree that inflation has increased prices at our local store. Partially because of economics, disruptions of supply chains, and loss of crops due to weather but that is only part of the picture. It is becoming apparent that greed in an industry that the government has left relatively unchecked for decades is a major driving force. They believe they can get away with anything and truth be told they can.

Case in point. In 2018 it came to light that the significant players listed above plus Walmart, Giant Tiger and Canada Bread were being investigated for anti-competitive practices in the food sector. The companies had been y colluding to fix the price of bread well above market value for at least 16 years. Loblaws and its parent company Weston Foods, one of Canada’s largest bread producers operating under the banner Weston Bakeries, admitted to the scheme but insisted it was concocted by a group of rogue employees who never revealed the scheme to the top brass. The employees were allegedly released and Loblaws agreed to the reimbursement program. Consumers were required to register at the Loblaws website, where they were asked to provide personal information and images of identification, such as a driver’s licence (a massive breach of privacy laws) to receive a $25 gift card. The admission and card program was instituted in exchange for immunity from prosecution. Keep in mind that the price-fixing scheme had taken place over a 16-year period. The other players denied any involvement in the scheme and five years later (21 since the scheme started) are still being investigated by Canada’s consumer watchdog, the toothless federal Competition Bureau. The price of bread has not dropped, in fact, it is more expensive than ever.

In 2019, less than a year after the scandal came to light the Trudeau Liberal’s awarded the hugely profitable Loblaws Companies Ltd. a $12 million grant to replace their in-store refrigerators with new environmentally friendly models. The grant was awarded through an Environment and Climate Change Canada program that did not include any checks and balances to ensure the grant was ever used to upgrade the aging equipment. A loophole that effectively had taxpayer cover large portions of the bread scandal rebate program. I admit none of the allegations I make have been proven but if it walks like a duck…

This week the federal government has called upon the CEOs of these companies to appear before the Standing Committee on Agriculture and Agri-Food which is probing the causes of an 11.4% increase in the price of food. Consumer costs have sky skyrocketed to their highest levels in decades, increasing at almost twice the 5.9% rate of inflation. The CEO’s responses to the committee questions were as expected:

“We are not profiting from inflation, it doesn’t matter how many times you say it … it is simply not true.” – Michael Medline, CEO of Empire Foods.

“Our food profit margin has actually decreased, focusing on grocers will not solve the problem of food inflation because we are not causing it and we’re not benefiting from it.” – Eric La Flèche, CEO of Metro Inc.

“So no matter how many times you read it on Twitter, the idea that grocers are causing food inflation is not only false, it’s impossible. Our retail prices have not risen faster than our costs,” – Galen Weston, CEO and President of Loblaws Group of Companies.

In the media scrum following his testimony, Weston played for sympathy suggesting his company loses money on every chicken breast it sells. I was so moved I almost pulled out the world’s smallest violin.

“It is folly to suggest that an unprofitable grocery business is somehow better for customers. Like all Canadians, we look forward to seeing the end of this tough inflationary period.” – Michael Medline, CEO of Empire Foods.

I say this to Medline and the entire group. No one is begrudging grocers for turning or even maximizing profits, but fair profits are not the same as gouging Canadians to a tune that far outstrips the rising costs so that you can line your pockets with as much gold as possible. Pockets that are so full, inflation is nothing more than an annoying mosquito buzzing about on a warm summer night.

It was an interesting exercise that I’m certain will amount to a big nothing-burger. Considering their past indiscretions I’m not sure we needed to cart out the dog and pony show to hear them insist they are not to blame for inflation and that the larger profits margins are a result of Canadians’ increased spending on other discretionary goods sold in their stores. The track record speaks for itself but I’m sure their word will be good enough for our limp-dicked politicians. None of them will ever be required to open up the books to back those claims. I suspect a well-timed donation to party coffers (3 companies, 3 political parties, you do the math) and the government will consider the matter closed.

In related news…

“The price of tea is going up.” Galen Jr. was heard uttering to his fartcatchers as they boarded the Weston family jet. “I’m not sure who these politicians think they are questioning me. They will pay through the nose for the cost and inconvenience they’ve caused. Take that Canada!!!”

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Happy New Year

Now that 2022 is firmly in the rearview and we can all look forward to a new year I can say that overall it wasn’t a bad year personally.

Yeah, the world went to shit with Russian aggression in Ukraine and COVID spending policies coming home to roost.

Inflation fucked with most of the free world’s economies in 2022 and we will likely see its ramifications for years to come. Still for those of us who lived through the late 1970s and early 1980s these rates are not that bad. Imagine a U.S. peak of 18.39% in July 1981 or a Canadian high of 21% in August of that same year. Things don’t look bad viewing it through that lens. Let’s hope we don’t let it get there.

On the European front, the tone from the Kremlin over the holiday has started to shift. Russia’s military is floundering badly in Ukraine and the Motherland’s losses continue to mount. Even more crippling to Putin’s war effort, the U.S. and its allies now appear willing to provide assistance to Ukraine in the form of modern sophisticated weaponry it needs to push Russia to the brink. In light of these factors, it would seem Putin and Moscow’s resolve for war are beginning to wane. That does not mean we are out of the woods and Russia’s nuclear arsenal remains a constant threat. That said there does seem to be some hope for optimism as the Kremlin’s apparent shift may be signalling that Putin and his government are laying the groundwork for possible exit strategies that would allow the tyrant to save face and hold onto power. Time will tell.

Closer to home, Greg’s Blog has had a great year, by far the best on record for my tiny corner of the world wide web. (Does anyone call it that anymore?) 2022 saw views of my blog climb from 1071 in 2021 to 6156 in 2022 (a 475% increase year over year) and visitors climb from 467 to 2785 (+496%). In terms of real numbers I know it’s still relatively small compared to some of the superstars I like to follow but it’s still something. Keep in mind it has also been my most active year blogging and it did see the start of a couple of weekly or bi-weekly features on my site. With the hectic holiday season over I hope to get back at it more regularly again and hope I can build on some of that 2022 momentum in the new year.

It has been fun interacting with so many of you and I hope to continue reading/viewing what everyone has to offer and hopefully put out content that you enjoy interacting with. Thanks to everyone for a great 2022 and I hope 2023 turns out to be a phenomenal year for everyone!