Canadian food distributors saw their operating profits jump by 25% in the first quarter of 2006 from the first quarter of 2005, according to research published by market analysis group the George Morris Centre in its Grocery Trade Review.

The George Morris Centre added that the profit improvement represented a significant achievement considering that total retail operating margins for all sectors fell by 20% in the same period. Moreover, the first-quarter improvement followed year-on-year declines in margins in the three previous quarters.

The first-quarter increase was also the largest increase in 24 quarters, the George Morris Centre said.

The increase in food distributor margins was in part attributable to a combination of modest retail price increases and flat costs at the wholesale level. In addition, official statistics and industrial price data suggest food price inflation of 2% to 3% at the retail level in the first quarter, while the cost of food purchased by distributors from manufacturers for the quarter was relatively flat. But this is not thought to be the prime explanation behind the improvement in margins, which the George Morris Centre attributed to higher sales of premium-priced goods.

“Price increases cannot explain most of the increase in margins and they certainly cannot explain the performance relative to all retail,” the George Morris Centre said. “It is noted that price increases at all retail were also in the 2% to 3% increase range. Cost increases for all retailers did, in fact, increase in the first quarter while food distributor costs were, as noted, flat. When all is considered, particularly price increases and cost increases, it appears that the stronger performance of margins at the food level can best be explained by the merchandising of high margin items.”