We’re not gougers, Northern says

I read with interest your articles in the May 28 issue of Nunatsiaq News under the headlines “A territory without banks”, “Northern cashes in on Nunavut’s primitive banking system” and “Northern a Nunavut carpetbagger?”

I would like to respond to your comment “The Winnipeg-based company that owns Northern has just unveiled a new scheme to exploit this situation, and to further gouge their long-suffering customers.”

I was particularly perturbed by your choice of the word “gouge.”

The North West Company, which operates 150 Northern stores in Canada and 30 stores in Alaska under the Alaska Commercial Company, is a publicly traded company listed on the Winnipeg and Toronto stock exchange.

On sales of $629,118,000, our net earnings for the year are $16,145,000 or 2.6 per cent of sales and our six-year average for net earnings is $13,878,000 or 2.3 per cent of sales, which is certainly not excessive in the retail industry. In other words, over the past six years, for every dollar generated in sales, only 2.3 cents were taken as net earnings — hardly “gouging”.

Undoubtedly, there is a perception of high pricing in the North, which naturally but unfairly prompts words such as “gouging” in the minds of journalists and others who are exposed to the high cost of living in the North.

Price differentials from north to south are most evident in perishables and other products that have to be flown in by air freight. There is no escaping the high cost of air cargo. The published cost of flying products from Winnipeg to Rankin Inlet is $1.05 per pound and from Montreal to Iqaluit $1.11 per pound.

The high cost of conducting business in the north accounts for our pricing, which on average is about two times higher, but ranges up to about five times higher for certain products, especially those high in water content, which have to be flown in.

A case in point is the price of fresh corn on the cob that was recently featured in Iqaluit at $1.87 each, but was selling in Winnipeg as of today’s date at 69 cents each.

Where possible, Northern attempts to take advantage of the lower freight rates offered by barge or sealift service. However, the lower cost is offset somewhat by the high cost involved in the financing for carrying huge amounts of inventory from one shipping season to the next, in addition to the added costs of warehousing, heating, etc.

Freight and warehousing costs are just two of the factors that affect price in the North. Other factors that affect the cost of doing business in the north as compared to Winnipeg or Montreal are as follows:

Construction costs for our stores are about two times higher. Winnipeg costs range from a low of $63 per square foot to a high of $100 per square foot. The average of around $80 for construction in Winnipeg would be comparable to the quality of our buildings, for which we pay around $150 to $160 per square foot for construction in the Arctic.

In addition to the store buildings, we require warehousing, both cold and heated storage facilities, to hold the tremendous quantity of inventory we carry in the North. We also have to supply housing for our management personnel in these locations.

Heating costs are five to six times higher for our stores. A study of the heating costs for a typical 21,000 square foot store in the Arctic amounted to about $27,200 per year. Comparable heating costs for a similar structure in Winnipeg was estimated at $5,200. The estimated heating cost for the typical Arctic store does not include the heating costs for our warehouses or dwellings, therefore our total heating costs are again much higher.

Electrical costs are six to seven times higher on average. A similar study conducted by an engineering firm commissioned by our company examined the electrical power costs of one of our typical 20,350 square foot stores in the Arctic.

Based on the electrical requirements of our lighting, equipment, refrigeration, etc., all operated continuously, the electrical power charge would run at $52,792 per month. The electrical power charge for a store in Winnipeg similarly sized and equipped would run at $7,596 per month. As store equipment does not run continuously, the actual hydro charges are approximately one-third to one-half of the estimates given above.

Travel costs in the North are very high. Maintenance of our equipment is another major expense, as breakdowns usually involve having to fly in repair men from Winnipeg or Montreal on short notice. The full fare airline rate from Winnipeg to Rankin Inlet and return is $1574 plus taxes, and from Montreal to Iqaluit return is $1,798 plus taxes. Management supervision from Winnipeg also involves similar travel costs.

In summary, the North West Company makes every effort possible to bring consumer goods into the North at the lowest prices possible. The recent introduction of financial services, whereby fees will be imposed on services previously provided at little or no cost, is another effort at lowering the cost of groceries in the north.

We operate 22 stores in the Nunavut region and provide direct employment for 626 people (mainly Inuit). Over $9,300,000 is pumped into the region in salary and benefit costs.

We also have a total of $30,700,000 invested in capital assets in the region and employ working capital in the range of $25,000,000 to operate these businesses.

The economic spin-offs from our business include the patronizing of other businesses that service the north — hotels, restaurants, banks, media, airlines, shipping companies, construction companies, fur, Inuit art. This is far from “carpetbagging.” The positive economic impacts of our business are real.

Len Flett
Vice President
Store Development & Public Affairs
The North West Company
Winnipeg