Rise and shine

Good morning. It's time to 'fall back' so we hope you set your clocks back today and got some extra Zzz's in.

In this edition:🍇 It cost how much?💰 Priceless

— Vindhya Kolluru, Editor

BUSINESS

The tea on grocery store pricing

What’s more painful than watching Kendall Jenner try to cut a cucumber? Perhaps the fact that the top grocers in Canada are profiting more than they ever have amidst inflation already hitting consumers hard (but we do have mad respect for Kendall’s ability to make fun of herself by wearing a cucumber Halloween costume).

What’s happening: New research from Dalhousie University finds Canada’s Big Three grocers (Loblaw, Metro and Empire) reported their highest profits in 2022 relative to their performance over a 5-year average, leading many to criticize grocery giants for profiting at a time that Canadians are already seeing the cost of food increase at the highest rate in 40 years.

• “We wanted to see if grocers were taking advantage of high inflationary times to charge an excess amount of money for food,” Samantha Taylor, co-author of the report and senior instructor of accounting at Dalhousie’s Rowe School of Business, told The Canadian Press.

While we can’t confirm whether this is true or not, the facts would suggest something fishy may be going on as the price of food has risen by over 11% (the fastest pace since 1981), compared to an annual inflation rate of 6.9% in Canada.

Why it matters: What makes it questionable is the lack of transparency in the way grocers report their financials. The Dalhousie research has identified that the financial reporting guidelines allow grocers to group together many operating segments that are similar. This means it’s difficult to decipher, and also easier for grocers to disguise, whether this jump in profits is driven by grocers increasing profit margins on food — or that shoppers are just choosing to spend their dollars on other pricier products.

• FYI: A profit margin, or gross profit, is the difference between the actual cost to produce a good or service (i.e. the water, fertilizer, transport, etc of a cucumber…sorry Kenny) versus what you as the consumer actually pay. This difference is the money the company gets to pocket as their own profit. The wider the profit margin the more the company is choosing to charge you as the consumer despite the raw expense of the said product.

Loblaw said that consumers are choosing to spend their dollars on higher-margin categories like drugstore products and cosmetics and that their profit margins on food have remained flat since inflation has set in. But without the transparency demonstrating these claims it has us wondering if these statements are true. Especially since it’s not the first-time Canadian grocery stores have duped consumers for their own corporate greed; recall the 2017 bread price-fixing scandal which included 3 of Canada’s top grocers.

• The price-fixing scandal was made public in 2017, but allegations have come to light that top grocers were colluding together between 2001 and 2015 to artificially raise the prices of most bread products, raking in an estimated $5 billion.

Zoom out: Consumers do have the Competition Bureau on its side as they have launched a study to determine what exactly is driving the acceleration in increases for food. Since the grocery industry is highly concentrated among a few top players, it begs to question of how fair competition plays out to the consumers’ benefit.

— Jodi Anderson

THE 411

The good, the bad and the ugly of debt

The 411 dishes, well, the 411 on a personal finance topic you need to know by cutting through the jargon and empowering you to take control of your finances. Have a topic you want us to tackle? Let us know!

Debt is one of those words that can induce panic. But the truth is not all debt should be perceived as bad or scary. With inflation soaring, many Canadians have had no choice but to turn to various forms of debt to make ends meet.

• Credit reporting agency Equifax reported that Canadians had an average of $2,121 in credit card debt at the end of September. Meanwhile, the total average debt (or non-mortgage debt) has increased to $21,188 per person.

The breakdown...

• Good debt is money that is borrowed to potentially make more money in the future. This means money that is an investment, such as money borrowed to buy a house (mortgage), start a business or a student loan. The money borrowed will generate more money in the future.

• Bad debt is money borrowed to buy something that will go down in value or borrowed to buy something that can’t be repaid on time or in full (incurring interest as a result). This includes credit card debt or personal loans that come with high annual interest rates.

But, wait: It’s important to remember that good debt and bad debt are also circumstantial. Getting a mortgage you can’t afford resulting in missed payments can turn good debt into bad debt (decreases credit score). Bad debt can have a negative impact on your credit score which is something lenders look at before providing a loan. Whereas good debt (assuming you’re meeting payment deadlines) will signal to lenders you’re reliable with money.

Although no exact amount indicates a person has too much debt, some money experts recommend that a  maximum of 30% of your income should go towards debt repayment (aka the debt-to-income ratio). This goes hand in hand with the recommended credit utilization score, the amount of debt compared to the total amount of credit you have.

TDLR: It’s normal to have debt! In fact, two-thirds of Canadians have some kind of debt, per a 2021 survey by Manulife Bank of Canada. In general, whatever you can’t pay back is considered bad debt and can signal to lenders that you’re a risky borrower.

— Harsimran Garcha

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