Few signs of greedflation, but generally high profitability in groceries

The Norwegian Competition Authority’s survey of profitability in the groceries market shows few indications that players in the grocery supply chain exploited the covid pandemic or the war in Ukraine to increase prices. However, the Authority finds that profitability is generally higher than one would expect in a market with strong competition.

The Competition Authority has collected data from several suppliers in various product markets, as well as from the three major grocery chains, which are active at both the wholesale and retail levels in the grocery supply chain. The Authority has calculated gross margins, operating margins, and return on capital for the period 2017 to 2022.

– The results generally show high profitability in the supply chain for groceries, says Magnus Friis Reitan, Deputy Director at the Competition Authority’s Department for Food, Trade, and Health.

The Competition Authority finds that the operating profitability for several of the players at the supplier and retail levels in the grocery supply chain is significantly higher than one would expect to find in a market with strong competition and few barriers to entry. Thus, the results are consistent with weak competition and significant barriers to entry in parts of the Norwegian grocery market.

In earlier assessments, The Competition Authority has been concerned that competition in the Norwegian groceries market is weak, partly based on high concentration, high barriers to entry, and high prices. The results from the Authority’s new survey support this assessment.

During the covid pandemic, demand for groceries increased. The Competition Authority’s survey shows that operating margins as well as returns on capital increased during this period. Increased demand can be expected to lead to higher operating margins and higher profitability in the short term.

Grocery prices to end consumers increased by 8.9 percent from December 2021 to December 2022. However, the Competition Authority finds that operating margins and returns on capital fell back to pre-pandemic levels in 2022.

– The results do not support claims that the grocery chains or suppliers generally exploited the extraordinary price increases in 2022 to increase profitability, says project manager Kathrine Tvedt Lavik.

This survey is the first part of the study of margins and profitability in the grocery market that the Competition Authority is conducting on behalf of the Norwegian Ministry of Trade, Industry and Fisheries. In the second part of the study, the Authority will analyze margins the product level.

The report is available in Norwegian here.