When it comes to selecting the most significant non-scandal of 2023, the “greedflation” campaign is by far the absolute winner. Politicians, and even some knowledgeable economists, have convinced many that Canadian grocers have taken advantage of the recent inflationary cycle to profit unfairly. Despite compelling data and many reports pointing to the contrary, many Canadians remain convinced of this narrative.

Jim Stanford, an economist known for commenting on food prices, is the most recent example of how Canadians seem to be embracing arguments against food companies without questioning their validity. Stanford recently claimed that net profits for grocers in 2023 would surpass $6 billion for the first time, a statement that gained significant attention and raised the ire of politicians and many Canadians. The media largely accepted these claims as fact without delving into the source of the data.

It’s important to note that the figures provided came from Statistics Canada, rather than corporate financial statements, which arguably would be more reliable. Statistics Canada’s Table 33-10-0225-01 which was used for the $6 billion argument can include convenience stores, specialty food stores and not just major grocers.

Net profits are not a suitable metric to consider unless the intention is to sensationalize the issue of profiteering. To assess whether a grocery chain is indeed profiteering, one can look at gross profit margins, calculated as revenues minus the cost of goods sold. It’s worth mentioning that the gross profit margins for our major grocers have remained relatively stable over the past five years, based on data from their financial reports (See Figure).

Now, let’s also examine profits, a topic that politicians often emphasize. The combined net profit for the three major Canadian grocery chains (Loblaw, Sobeys, and Metro) in the past 12 months amounted to $3.808 billion. It is highly unlikely that this figure will exceed $6 billion in the current year, as claimed earlier this week. To reach such profits, these chains would need combined revenues totalling $110.6 billion over the past year. When considered as a percentage of total sales in the last 12 months, the combined profits represent only about 3.4%, which is an incredibly modest return. Additionally, this figure includes non-food items like cosmetics and prescription drugs, which typically have higher profit margins.

In essence, though, there is nothing inherently wrong with profits, and in a functioning economy, companies should report increased profits annually due to inflation. Canadians should understand this. People’s salaries increase, the prices of goods and services rise, and naturally, net profits increase in dollar terms. This is why it is critical to analyze percentages over time for a more comprehensive assessment.

In 2023, emotions seemed to overshadow a proper understanding of the food business world and food supply chain economics among many Canadians. Blaming the food industry has been, and continues to be a convenient diversion for politicians, diverting attention away from the real issues impacting inflation, such as public overspending and fiscal policies, among others.

However, grocers are not without blame either. Beyond profiteering, the industry has some challenges to address. Regulatory compliance has been an issue, and the bread price-fixing scandal has certainly tarnished the industry’s reputation. While it’s true that some level of greed exists in the food industry, as in any economic system, it can also be taken to an extreme.

Our grocery chains here in Canada are well-managed, but it is also to note that profit margins in other countries like the United Kingdom and the United States are about half of what they are here. While acknowledging that the evidence of profiteering in Canada is weak at best, there is a need for more competition in the market.

François-Philippe Champagne, the Minister of Innovation, who is on a mission to increase competition, has called upon other grocers abroad to invest in Canada. However, the challenge lies in making Canada an attractive destination for investment, which cannot be achieved without a mandatory code of conduct that levels the playing field between the major grocery chains, independent grocers, and suppliers alike. Right now, players like Loblaw and Walmart have way too much influence and are dictating supply chain rules, a dimension consumers don’t necessarily see. It’s been like that for a while now.

With a well-defined mandatory code of conduct, Canadians may have to wait a considerable amount of time before witnessing the entry of new grocery players into the Canadian market.

Many companies harbour a general aversion to regulations, often perceiving them as excessive burdens that hamper their ability to navigate an intricate web of rules. In sectors like food production, which encompasses areas such as food safety, fiscal constraints, and labelling requirements, these challenges are a constant struggle. Some of this resistance to regulation is undoubtedly rooted in corporate interests, but it is increasingly evident that the regulatory burden on companies, especially within the food industry, is exacting a toll.

Let’s examine Canada’s thriving Natural Health Product sector as a case in point. This sector has emerged as a significant contributor to the national economy, showcasing robust growth and innovation. However, its promising trajectory is currently under threat due to what many perceive as overregulation, particularly stemming from new labelling rules that present substantial challenges for the industry. The health products sector encompasses a wide range of products, from vitamins and herbal remedies to traditional medicines and organic hygiene products. According to a recent Deloitte report, sales in this sector have surged from an estimated $4.3 billion to approximately $13.2 billion in recent years, with exports also expanding from $0.7 billion to $3.6 billion. This growth is not only reflected in sales figures but also its significant contribution to Canada’s GDP and employment, providing livelihoods for approximately 92,000 full-time equivalent jobs—a truly substantial impact.

Regrettably, most Canadians are unaware of the regulatory shifts occurring across various facets of this sector, including cost recovery, labelling, and health product regulations. While consultations are ostensibly carried out for each change, public authorities seldom heed the concerns raised by industry stakeholders. For instance, the ongoing open consultation on cost recovery, which concluded in August, is poised to be implemented by 2025 with no significant adjustments. In 2022, new labelling regulations were introduced, with a phased implementation plan stretching into 2025. Additionally, the recent Royal Assent for Vanessa’s Law in 2023, with implications for Natural Health Products, anticipates the introduction of further regulations in 2025 and beyond, underscoring the evolving Canadian regulatory landscape, with one change following another in quick succession.

These recent regulatory changes, particularly those related to labelling, are poised to unravel the significant progress made in the natural health sector. Although well-intentioned, these regulations disproportionately impact the predominantly small and medium-sized businesses that constitute the sector. Many of these enterprises have already been severely affected by the COVID-19 pandemic and have limited capacity to absorb the additional costs associated with these new rules. A recent Deloitte survey paints a grim picture: 50% of respondents foresee a negative impact on business attractiveness, 76% anticipate reducing their product offerings, and 21% are contemplating shutting down their operations in Canada. The prospect of one in five businesses exiting the industry is well beyond the norm, potentially fostering more competition and competitive pricing overall—a double-edged sword.

What makes these developments especially worrisome is that they revolve around health products, which have gained paramount importance for Canadians in the wake of the pandemic. As Canadians prioritize their health more than ever before, the competitiveness of our food sector becomes pivotal.

The repercussions of these regulations are vast, extending beyond stifling innovation and competitiveness to encompass significant job losses and reduced product diversity. This is deeply concerning, given that the health products sector has not only been a source of entrepreneurial potential but has also offered healthier lifestyle choices for Canadians.

Furthermore, the sector’s challenges highlight broader issues within regulatory policies. Regulations, originally designed to ensure safety and efficacy to protect the public, can inadvertently stifle growth and innovation. This is particularly true in sectors like natural health, where small businesses dominate and lack the resources to navigate complex regulatory landscapes.

As Canadians and Ottawa grapple with ways to enhance competition in our nation, it’s crucial to strike a balance between consumer safety and health on one hand and innovation and business growth on the other. The current trajectory strongly suggests the need for a comprehensive review of these regulations, potentially exploring alternative policies that achieve the same objectives without jeopardizing this vital sector. Only through such a reassessment can we ensure that our food sector, not just health products, continues to thrive, contributing to Canada’s economy and the well-being of its consumers.