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Profit 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

Profit 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 2y ago
You 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 2y ago
I 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.

hibikir 2y ago

You 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 2y ago

I 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.