Selling Butter at 54% Profit: Leaked Docs Show Loblaws' Exorbitant Markups | Hacker News Reader

Selling Butter at 54% Profit: Leaked Docs Show Loblaws' Exorbitant Markups

thedeepdive.ca

19 pointsnithinj21 comments

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.

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.

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.

This 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.

So they're just realy bad at runing a grocery store?

Isn't there a perspective where high margins indicate "good at running store"?

> 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-...

* https://www.marketplace.org/2022/05/13/how-do-grocery-stores...

Yeah but since their prices are high, their costs must be higher than other stores'.

No one has established that their prices are high, or are not offset by location, presentation, discounts, etc.

If they were high priced with no advantage they’d be out of business.

No, those are typical margins for grocery. The point is there’s nothing unusual about loblaw’s margins

So why are the margins so low if prices are high?

Because costs are also high.

A large supermarket takes up vast amounts of expensive real estate both for the store itself and for parking. There may be a warehouse as well (though those can generally be put on less-expensive real estate). Not only does the real estate cost a lot to begin with, property taxes are an ongoing expense.

Many of the major grocery chains are unionized, and pay (relatively) high wages. The dollar stores are more likely to pay minimum wage or maybe a bit more.

As others have noted, a lot of meat and produce winds up being thrown out because it's going bad. That's spendy, especially for meat.

Then that huge space has to be heated and cooled to keep the humans comfortable and you also need to pay for the electricity to run gigantic refrigeration and freezer units for the food. This is made worse by the fact that the freezer units have to be powerful enough to handle people opening and closing them all the time, and the fact that they need to have glass doors so people can see what's in there. Sometimes the freezers and often the meat/dairy refrigeration are actually open to the air, without doors of any kind.

And so on.

Yeah, "running a grocery store". The part I said they were bad at. Why would all/any of that stuff be more expensive for Loblaws than other stores?

> Why would all/any of that stuff be more expensive for Loblaws than other stores?

I see no data for "other stores" in this article.

It’s the government scape goating / distracting population from real issues, which are affordable housing and immigration.

I’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.

I read about this on Bob Loblaw's Law Blog.

While 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.

There's a few "-" there ... do they actually sell a couple items at a loss?

Looks 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.

Isn’t 54% a standard markup on most retail products?

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