Recently leaked documents posted on Reddit have shed light on the pricing practices of Loblaw Companies’ (TSX: L) flagship grocery chain Loblaws, revealing exorbitant markups on everyday items such as butter, cheese, and spreads. The documents, purportedly an invoice from Loblaws to a No Frills store, highlight significant profit margins, raising questions about fairness and transparency in retail pricing.
At the center of the revelations is the Gross Profit Margin (GPM), a key metric in retail indicating the percentage of revenue that exceeds the cost of goods sold. In this case, the leaked documents reveal GPMs as high as 53.75% for President’s Choice Unsalted Butter Alternative, suggesting a considerable markup on a staple grocery item.
The retail giant has long been marred with issues on extremely high grocery prices, with Metro Inc. (TSX: MRU)taking a legal action alleging that Loblaws falsely implicated Metro in a bread price-fixing conspiracy, causing damage to its reputation.
Based on indicated GPMs, some of the products sold at more than 40% margin include: No Name Sour Cream (51.48%), President’s Choice Original Lemonade (49.17%), Derlea Garlic Spread (46.55%), Gay Lea Unsalted Butter (45.57%), Silk True Almond (44.66%), Astro Original Yogurt (43.41%), President’s Choice Kefir (41.38%), and Kraft Natural Cheese (40.81%).
Based on the summary of this particular leaked invoice, profit margin on dairy products came in at 28.7% on the average while natural foods’ margin came in at 39.3% on the average.
This comes after Loblaw has had a successful fourth quarter with a revenue increase of 3.7%, reaching $14.53 billion, which surpassed analyst expectations. Adjusted earnings per share also rose by 13.6%, reaching $2.00 per share, higher than the expected $1.90 per share. The company attributed this success to its focus on improving its retail operations, resulting in increased customer traffic and market share.
For the full year, Loblaw reported revenue of $59.53 billion, up by 5.4% compared to the previous year. Gross profit margin for the year came in at 32%, comparably similar to 2022. Adjusted earnings per common share increased by 13.6% to $7.75.
A noteworthy aspect of the year was the company’s buyback program, during which it repurchased 14.5 million shares for $1.73 billion. Additionally, retail free cash flow amounted to $1.69 billion. These buybacks occurred amid concerns about high food prices, with the federal government urging grocery companies to reduce costs under a “grocery code of conduct.”
Despite record profit for Loblaw’s, chairman Galen Weston attempted to pass the blame to grocery suppliers, while also stating that food prices would not go down if Loblaw reduced its profit margins.
“I do understand that Canadians are feeling this pressure. They look at these big numbers and they think to themselves, ‘Gosh, if that company would not make so much profit, our food prices would go down.’ But that’s not the way that it would actually work,” commented Weston in December.
Loblaw’s Dropped $1.7 Billion On Buybacks In 2023 While Fighting Against Grocery Code Of Conduct
Most recently, the retail giant also faced scrutiny after it disclosed the hefty compensation package of its new chief executive, Per Bank, totaling $22.1 million for the year 2023. Bank, who assumed the role on November 1st, received a one-time $18 million award to replace forfeited compensation from his former employer.
The package breakdown revealed Bank’s $1.315 million annual salary, a target annual bonus of nearly $2 million, and a target of $7.2 million in annual long-term incentives for the current year. Despite his brief tenure, Bank received approximately $3.75 million for his first 60 days on the job, alongside additional benefits including rent coverage and tax equalization payments.
Per Bank Made Bank: Loblaw CEO Made A Hefty $22 Million Amid Boycott Calls
Loblaw Companies last traded at $148.80 on the TSX.
ERRATUM: An earlier version of this article noted that the gross profit margin for select products were “curiously at 0%”, without noting that there were no delivered products–hence, the zero value of the margin. This has been corrected.
Information for this briefing was found via Reddit and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
