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Selling Butter at 54% Profit: Leaked Docs Show Loblaws' Exorbitant Markups
- fugalfervor 3y agoI read about this on Bob Loblaw's Law Blog.
- kristopolous 3y agoThere's a few "-" there ... do they actually sell a couple items at a loss?
- kevingadd 3y agoLooks like promotional pricing or some other sort of deep discount, unless it's common to have typos in the pricing system. The original list price for those items looks wrong.
- apantel 3y agoProfit is revenue - expenses. The margin on one product is not the profit made on that product. That margin is joining all of the other margins, which have to conver the whole cost of running the business. Then once all those expenses are paid, whatever is leftover is profit. A giant company like Loblaws is going to have some high-margin goods, some low-margin. They’re going to have cost centers like IT that just cost them money and don’t make them any money as business units. Some of that butter margin is going to the IT department. Some of it is covering how cheap the grapes and bananas are. Only a tiny fraction of it is going into shareholder pockets.
- hibikir 3y agoYou are mentioning accurate points, but I suspect that the real change is caused by trying to handle the fact that they now compete with dollar stores. Traditional math on supermarkets is that the green grocer's, meat and milk aisles end up being relatively unprofitable because of inventory losses: Way too many of the items spoil, and more has to be spent just preventing the spoilage of what they do sell. Most of the profit typically comes from the middle of the supermarket, where almost nothing spoils fast enough that the inventory cannot be moved, even if it takes a sale or two. Thus, historically people are brought to the supermarket by good prices on french toast components, but many of them are being subsidized by big margins elsewhere. But that cross-section subsidization is how dollar stores attack the business: They avoid the expensive sections, and just sell the middle parts of the supermarket at very low margins, outcompeting then there. As the supermarket loses sales there, they have to rely on the least safe sections to stay afloat... sections that used to be straight out unprofitable. So of course prices have to go up, as each section has to carry its weight, instead of being cross-subsidized.
- tmaly 3y agoI remember as a kid going grocery shopping with my grandparents. My grandmother would visit four different stores. It did not make sense to me why till I read your comment. She was looking for the deals on the loss leaders across stores.
- icegreentea2 3y agoWhile Loblaws may have had overall ~30% gross profit in 2023, they reported operating income (revenue - COGS - operating costs) of 3.7 billion on 59.5 billion of revenue - so about 6%. Certainly not ridiculous, but also not razor razor thin either.
- graeme 3y agoThis has become a bizarre populist issue in Canada. Loblaw’s net profit margin is 3.74%. That’s higher than pre pandemic but it just isn’t the cause of inflation or the high cost of living. Grocery is a highly competitive market.
- sp332 3y agoSo they're just realy bad at runing a grocery store?
- maxerickson 3y agoIsn't there a perspective where high margins indicate "good at running store"?
- throw0101c 3y ago> So they're just realy bad at runing a grocery store? Single-digit profit margins are fairly standard: * https://www.itretail.com/blog/maximize-grocery-store-profit-margins https://www.itretail.com/blog/maximize-grocery-store-profit-... * https://www.marketplace.org/2022/05/13/how-do-grocery-stores-make-money-when-their-profit-margins-are-so-low/ https://www.marketplace.org/2022/05/13/how-do-grocery-stores...
- graeme 3y agoNo, those are typical margins for grocery. The point is there’s nothing unusual about loblaw’s margins
- rapsin4 3y ago[flagged]
- daft_pink 3y agoIsn’t 54% a standard markup on most retail products?
- moltar 3y agoI’m tired of the Canadian government scape goating the grocery stores. They aren’t saints, for sure. But these are minor issues. If the margin on butter was 50% then I’d not be looking at individual grocer, but rather look for signs of collusion. Because if they are an outlier in price then market would discover that and shop elsewhere. But if everyone’s price of butter is about the same then it’s probably the bread collusion repeating again.