Retail Margin On Milk: So Low That Everyone Sells At Maximum Price

We have been a bit surprised recently to realize that all retailers, large and small, almost without exception, sell regular 2L milk at the same price.

The maximum price.

The maximum price for 2% milk in 2L format is $ 3.60 while the 1L format is $ 1.82 (see regulated price list here).

These maximum prices are found everywhere.

At Couche-Tard? The 2L is $ 3.60. Dépanneur du Coin? $ 3.60. Boni-Soir? Select? Le Magasin? Eko? Same thing: $ 3.60.

Some may say that this is to be expected since convenience stores pricing in general is more expensive. But it’s the same for supermarkets too.

IGA, Metro, Provigo, same price: $ 3.60.

Same for the 1 L format: it’s $ 1.82 everywhere. Such consensus among competitors looks suspiciously like some kind of protest against a fixed price of milk that is way too low.

A Year That Started with Anger

At the beginning of the year, voices were raised to denounce the non-profitability of the sale of milk at convenience stores.

The Chinese Convenience Store Association (CCSA), among others, made a lot of noise after threatening to stop selling milk in depanneurs should the margin not be raised (see here, here and here).

According to information obtained by DepQuébec, Agropur sells its 2% Québon 2L milk $ 3.32 per unit to depanneurs, while the regulatory price range is between $ 3.30 and $ 3.60. So at the minimum price this means a loss of $ 0.02 per unit, while at the maximum price it means a profit margin of $ 0.28 per unit or 7.7%. Given that milk is a perishable good, heavy to handle and which must be kept cold, the maximum margin on this product remains extremely low.

In other words, to pay an employee currently at minimum wage for just one hour of salary with benefits ($ 13.08 / hour, see here), a retailer has to sell 47 units of 2 L of milk! That’s about what a small depanneur sells in three days!

The straw that broke the camel’s back according to the chinese association is the fact that the dairy companies (especially Agropur) last year decided not to take back the unsold anymore.

So not only are small c-stores can barely make any profit on the sale of milk, but now they can lose a lot.

The Régie des marchés agricoles said no

During the consultations for the annual milk price review at the beginning of the year, the CCSA and the Association des détaillants en alimentation (ADAQ) argued that retailers’ margins should be reviewed and increased.

The Régie said no. The minutes of his decision indicate: “the demands (of both associations) regarding the profit margins of the retailers and the assertion of the Chinese Convenience Stores Association that, in the absence of changes, depanneurs could no longer afford to offer milk to their customers is not supported by conclusive evidence “.

The ADAQ has committed to provide new convincing studies, but as far as the current year is concerned, the damage is done.

However, based on the current pricing behavior of retailers, there seems to be a clear indication that the margin is really too low.

Indeed, if the margin were sufficient, the mechanism of healthy competition would come into play and there would be a normal variation in prices between competitors within the regulatory pricing range of $ 3.30 to $ 3.60, some offering milk at discount, others not, etc.

The fact that ALL currently appear to sell milk at maximum price is not normal and should act as a warning bell to the government policy-makers: this is consistent with a fixed price that is way too low.

So whether you’re a depanneur or a supermarket, there’s simply no room to lower prices. Obviously, the retail network is lacking oxygen for this product and this is not normal, neither fair nor healthy for the entire milk supply chain!

 

 

Note: As for the 4L format (in plastic bags), most supermarkets sell it for a minimum price of $ 6.33.