Structural Change in the Canadian Retail Food Industry An Analysis of Profits Within the Canadian Re

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Structural Change in the Canadian Retail Food
IndustryAn Analysis of Profits Within the
Canadian Retail Food Sector

• David Smith, Finance Canada
• Michael Trant, Statistics Canada

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Motivation

• Trade environment (CUSTA, NAFTA, WTO)
• Restructuring in manufacturing and retailing
  sectors

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Research Program

• Profits in the food chain
• farming
• food processing
• food distribution - wholesalers and retailers
• Profitability
• Competitiveness

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Methodology

• Determine the measure of performance to be used
• Establish a data set
• Compare the rate of return over a number of years

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Commonly Used Rates of Return
Return on Shareholders Equity


Return on total Capital Invested

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Rate of Return from Operating Income on Total
Capital Invested

• net operating income

long-term liabilities shareholders equity
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Data

• Stratified random sample from the Annual Survey
  of Financial Statements (T2 records)
• SIC-C enterprise data
• Data series from 1990 - 1998

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Data Issues

• Enterprises are classified according to their
  major activity
• Sample data are not completely consistent
• a number of firms with no sales of goods
• some firms with current liabilities greater than
  total liabilities
  

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Food Distribution Sector

• Food is second largest retail sector
• Food distribution contributes 2.6 to GDP
• Foodservice contributes 1.9 to GDP
• Food prices rising more slowly than prices in
  general
• Demand a function of population, 1.5 to 2 per
  year

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Issues

• Cost containment
• Increased competition from non-traditional retail
  channels
• Increasing customer service and better meeting
  customer demand

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Performance of Food Wholesalers
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Performance of Food Wholesalers by Size of Firm
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Performance of Food and Non-food Retailers
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Food Retailing Performance by Size of Firm
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Performance in the Foodservice Sector
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Performance in Foodservice Sector by Size of Firm
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Performance of various segments of the agri-food
system
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Next Steps

• Still have more questions than answers
• Incorporate the farm sector in the analysis
• Analyze reasons for profitability technology
  (STC), innovative practices (STC), efficiency,
  economies of scale, niche, market power (UBC)