By Brenda Sawatzky, Local Journalism Initiative Reporter, The Niverville Citizen
December 16, 2023
True to their fall campaign pledge, the NDP will be making good on their promise to apply a temporary freeze to the 14-cent per litre provincial fuel tax as of January 1.
For Manitobans, this could amount to some significant savings at the pumps and on home heating bills. The tax freeze will apply to gasoline, diesel, and natural gas.
At this point, the province has committed to seven months of tax savings, although they have reserved the option to extend the freeze if inflation remains high.
Addressing delegates of the Association of Manitoba Municipalities (AMM) at their fall convention in Brandon, Premier Wab Kinew said that his party intends to ensure that consumers see the results of the tax freeze reflected in their grocery store receipts as well.
“You’ve heard the big chains, the billionaires owning these big chains, talk about ‘Oh, it’s transportation costs that are the reason why grocery prices are going up,’” Kinew said. “Well, guess what? We’re calling their bluff. Transportation costs will be reduced for the big grocery chains starting on January 1 and if they don’t pass the savings to you, then we will take further action to follow up with that.”
So far, Kinew has been unclear as to what that further action would entail.
At the same time, Kinew says he’s taking a keen interest in steps being discussed at the federal level regarding the stabilization of skyrocketing grocery prices.
Earlier this year, NDP MP Alistair MacGregor introduced a motion in the House of Commons to adopt a grocers’ code of conduct.
The CEOs of Canada’s five major grocery chains have been called to roundtable sessions at Parliament to discuss its implementation. They include Galen Weston (Loblaws), Eric La Flèche (Metro), Michael Medline (Empire, Gonzalo Gebara (Walmart Canada), and Pierre Riel (Costco Wholesale Canada).
Some say that the code of conduct won’t be effective unless all these companies sign on. Others, like Galen Weston, say that certain clauses in the code will actually make matters worse for the consumer and, until it’s rewritten, he won’t sign on.
According to Centre for Future Work (CFFW), a Canadian research institute, while food inflation has slowed it still remains higher than overall inflation. Public anger, CFFW claims, is directed at the major supermarket chains which dominate the sector.
“Supermarket executives claim they have not profited from food price inflation but have merely passed on to consumers the higher costs they pay for their own inputs and products,” reads a report from the CFFW website. “Economic evidence refutes this claim. The latest industry-wide financial data on food retail, produced by Statistics Canada for the third quarter of 2023, shows that food retail profits have more than doubled since pre-pandemic norms, and profits continue to grow.”
Local Grocer Takes Pragmatic Stance
John Schmitke owns Your Grocery People (YGP) in Niverville. He says it’s misleading for the provincial government to suggest that the 14-cent gas tax relief will result in significant savings to grocery bills, especially in light of the fact that only a small fraction of his costs involve local freight.
“I don’t control the grocery industry,” Schmitke says. “I just operate within it. And it’s the same thing for all of Manitoba. We’re such a small market in the bigger scheme of things. The grocery industry is an international business and a policy in Manitoba won’t significantly affect most of it. Your bananas don’t come from Manitoba. Your green onions and lettuce don’t come from Manitoba. Your Kraft Dinner isn’t manufactured in Manitoba.”
For Schmitke and other Manitoba grocers, the most significant freight expenses by far are international, since groceries are brought in from all over the globe.
It’s only the last leg of the shipping journey, on Manitoba soil, where tax savings can be realized. According to Schmitke, Manitoba shipping costs amount to about one percent of his total cost of doing business.
One must also consider that only about a third of the cost of running a freight truck is related to purchasing fuel, he adds.
Based on these realities, Schmitke says that his customers may only benefit to the tune of 0.046 percent on their groceries. In dollars and cents, that amounts to about a nickel’s worth of savings on a $100 grocery bill.
Are Grocers Gouging the Public?
According to Schmitke, another misconception is that grocery prices are significantly inflated. While he does admit that big conglomerates have been responsible for some shady practices at times, gouging the consumer at checkout isn’t one of them.
On the contrary, he says that the grocery industry has a fairly compressed profit margin in comparison to most other commodities.
“The profit margin in the 80s and 90s was better than today,” Schmitke says. “Grocery stores have certainly increased their sales, and they’ve certainly increased their profitability in dollars, but that’s only because they’re selling more stuff.”
That’s not to suggest that there was no increase in profit margins due to the pandemic, he adds. He says it was more of an industry correction from the very low margins being experienced in the years just prior to COVID-19.
In Schmitke’s estimation, that correction amounted to about a one percent increase for grocers on their gross profit margins. So when you consider net profit margins, the increase in profit isn’t all that impressive once all the costs of staffing, utilities, mortgages, and product has been subtracted.
Why then has the price of groceries risen more than profit margins? Just like in every other industry, Schmitke contends that it costs more to do business than it once did, especially in light of recent hikes to Manitoba’s minimum wage.
He says that retailers in virtually every industry experienced a buying frenzy during the pandemic, contrary to what everyone expected.
Schmitke personally witnessed this change, and the uptick in spending still hasn’t slowed down. Generally speaking, consumers are more willing to spend money on what they value.
“People got really used to the idea that they can’t just have everything they want right now,” Schmitke says. “That’s partly why people didn’t care what things cost. When it was there, they just bought it because they knew it might not be there next week.”
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He says this created a shift in thinking for the average grocer, too. There was a time not that long ago when it was commonplace for a grocer to take a loss on certain products in order to be more competitive. It still happens, he says, but probably not with the same regularity.