Amidst public anger at high food prices, Canada’s major supermarket chains have argued they are not the source of the problem. Food prices are high, they claim, because of higher costs charged by food processors and other suppliers. While their profits have grown to record highs during the current inflationary episode, they claim this merely reflects a normal profit ‘margin’ applied to a bigger volume of costs.
Past research has documented that profits in the food retail sector have indeed become unusually high since the pandemic, despite (or perhaps because of) soaring food prices. For example, in a submission to the recent Parliamentary inquiry into food inflation, the Centre for Future Work documented that food retail profits have roughly doubled in absolute terms since the pandemic, and the profit margin (as a share of total revenue) has grown by about three-quarters.
What are the supermarkets doing with those record profits? Loblaw’s former CEO Galen Weston told the same Parliamentary committee that “the profit we do generate, we reinvest back in this country to create more stores, more services, and more jobs.” But the companies’ own financial statements show otherwise. All three of the biggest chains (Loblaw, Metro, and Empire, which together control about two-thirds of the national grocery market) have been spending large sums of those profits to buy back their own shares – which builds no stores, offers no services, and creates no jobs.
This is confirmation that the chains are earning unusually high profits, so much that the firms have no productive use for the cash. By buying back their own shares, the firms drive up share prices (and usually drive up CEO bonuses, as well, which are often tied to share prices), and distribute surplus cash to investors.
The three grocery giants have spent some $2.25 billion since the pandemic on share buybacks. They spent twice as much last year on share buybacks as it would have cost the entire food retail sector to raise wages for all grocery store workers by $2 per hour (as unions have been demanding, ever since the companies simultaneously eliminated the former $2 ‘hero pay’ they offered during the initial COVID lockdowns).
Stock buybacks are a sure sign companies literally have more money than they know what to do with. And thanks to share buybacks and other cash distribution strategies (like special dividends), stock markets no longer serve as an institution for raising new capital for growing firms; on a net basis, stock markets are now a mechanism for extracting capital from the productive economy, and paying it out to investors.
Supermarkets are not the only companies buying back their own shares in record numbers. Other companies in Canada, which have recorded record-high profits during the post-pandemic surge in inflation, are also buying back shares. (See the Centre for Future Work’s previous research on the extent of record profits across 15 strategic sectors of the economy, and the connection between those profits and soaring inflation.)
Centre for Future Work Director Jim Stanford was interviewed by journalists at Canadaland for a podcast investigation of share buybacks by the major grocery companies. The podcast also features commentary from William Lazonick, a leading U.S. financial economist and prominent critic of share buybacks.