The controversial business practice into which Canadian grocery chains sink billions

Stock buybacks are "toxic to productivity, they're toxic to wages, they're toxic to the prices that consumers pay"

This week, nearly 4,000 Metro grocery stores workers in the Greater Toronto Area will enter the second month of their strike. The sticking point is wages: they would really, really like an extra $2 an hour, akin to the “hero pay” they got in the early days of the pandemic.

So far, Metro has not entertained that, even as the company has unveiled “massive” profits and seen fit to sharply jack up compensation for executives. But there’s another indication that the company may have more cash on hand than it knows what to do with — one that hasn’t been discussed or reported on to nearly the same extent.

Last year, Metro spent $470 million on buying its own stock. The other major grocery chains, Empire and Loblaw, spent $248 million and $1.2 billion on buybacks, respectively. The economist Jim Stanford, the director of the Centre for Future Work, estimates that for half that amount, the three companies could have given each of their workers an extra $2 an hour and still have had a billion left over for buybacks.

On this week’s CANADALAND, Cherise Seucharan explains just what the heck that all means and why, even in the best of economic times, some economists still consider stock buybacks to be a highly questionable (albeit totally legal) business practice:

For the episode, Cherise spoke to a pair of economists with expertise in Canadian grocery chains and stock buybacks, respectively. Here are edited excerpts from their comments:

Jim Stanford, director of the Vancouver-based Centre for Future Work: “So a publicly traded corporation issues shares, and that entitles you to collect a share of the dividends and so on. But what happens when a company goes onto the stock market and basically buys its own shares? What it’s doing is taking some of its profits and using those to reduce the number of shares that are actually being traded on the stock market. Because when companies go out and buy their own shares back, inevitably the share price tends to rise. And this is part of the reason that companies do it. They like to reward their investors, and they want to look good on the stock market.”

William Lazonick, economics professor emeritus at the University of Massachusetts Lowell: “Profits are supposed to be the way in which companies grow: you have extra money, because you have revenues greater than costs in a given year, and you reinvest that. I call that a ‘retain-and-reinvest’ regime. But what stock buybacks are doing is actually taking money out of the company. And eventually, if they keep doing this, the business won’t be good. They start squeezing their employees and gouging their customers to get more profits to do buybacks.”

Stanford: “The three supermarket chains, in their most recent fiscal years, spent a combined total of about $2.25 billion on share buybacks. So for less than half of what they’ve given their own shareholders, they could have paid every single worker — including the managers and the executives — an extra $2 an hour. The $2-an-hour wage benefit for people for getting through the pandemic would absolutely be affordable, and they could still spend over a billion dollars a year on share buybacks.”

Lazonick: “I argue that even if you taxed buybacks at 40%, that would be like taxing cigarettes, basically. And then you should have on the website of every company that still does buybacks — and I’m kind of semi-serious about this — a banner that’s going across that says ‘Stock buybacks kill the middle class’ or ‘Stock buybacks undermine innovation.’ Buybacks are toxic. They’re toxic to productivity, they’re toxic to wages, they’re toxic to the prices that consumers pay.”

Statement from Loblaw: “Share buybacks are a regular practice to return capital to shareholders, which in this case includes Canada’s pension plans, benefitting millions of Canadians.”

Metro and Empire did not return requests for comment.

Top graphic assembled from screencaps of the grocery CEOs testifying on food price inflation at the House of Commons’ Standing Committee on Agriculture and Agri-Food in March.

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