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Annual wholesale trade
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Growth in business investment and consumer spending, coupled with a healthy construction sector, contributed to higher revenues and profits for wholesalers in 2006.
The economic environment in 2006 provided a very favorable context for Canada's wholesale trade industry. Several key factors affecting wholesale trade included increased investment by businesses that continued to drive revenues; robust consumer spending; growth in imports of consumer goods; record levels of residential and non-residential construction; and lower prices on certain products resulting from increases in the value of the Canadian dollar against the US dollar.
Nearly all segments of the wholesale industry have experienced strong economic growth in the last two years. Total operating revenues for the industry hit $660.0 billion in 2006, up 5.8% from 2005. This rate of growth was slightly slower than the increases of 7.1% in 2005 and 9.1% in 2004 increases.
In 2006, one half of the growth came from three groups: petroleum products, building supplies and the "other products" category, which consists mainly of agricultural products, chemicals and recycled metals products. In 2005, by contrast, just one group, petroleum products, accounted for more than half of the annual gain in total operating revenue.
Revenues of petroleum wholesalers increased 7.8% from 2005 to $121.2 billion in 2006, largely the result of increases in the price of crude oil. This recent increase came on the heels of three years of strong growth where operating revenues grew an average of 23% per year since 2003.
In 2006, petroleum wholesalers accounted for 18.4% of total industry revenues, the largest share among the industry's 17 groups. This proportion was up from 18.0% in 2005.
Following three years of declines, wholesale sales of motor vehicles rebounded in 2006 as revenues rose 2.8% to $75.6 billion. While auto exports remained weak in 2006, sales of vehicles in the Canadian market did well, rising 2.2%, according to the New Motor Vehicles Sales Survey.
Canada's wholesale industry accounts for about 5.7% of economic output as measured by gross domestic product.
Note to readersThese annual financial statistics are based upon a sample survey and represent the activities of all wholesale trade establishments (North American Industrial Classification System 41) of incorporated and unincorporated businesses on Statistics Canada's Business Register. The annual statistics include estimates for grain and petroleum wholesalers and for Agents and Brokers which are not included in the Monthly Wholesale Trade Survey. The statistical unit used in this survey is the establishment (at the operating level). Gross margin is obtained by subtracting the cost of goods sold from the total operating revenues. To eliminate duplication, the reporting of direct and non-direct salaries and wages were excluded from the 2006 questionnaire as they were often reported as part of total salaries and wages. This change in 2006 impacts the calculation of gross margins by lowering the cost of goods sold by approximately 2.6%. Operating profit is obtained by subtracting the total operating expenses plus the cost of goods sold (opening inventory plus purchases minus closing inventory) from the total operating revenues. Operating expenses-to-operating revenues ratio is obtained by dividing the total operating expenses by the total operating revenues. The ratio is expressed as a percentage of total operating revenues. |
The majority of wholesale groups post gains
Operating revenue increased in 15 of the 17 wholesale groups in 2006, accounting for 97% of total revenue. Wholesalers of office and professional equipment (+9.3%), building supplies (+9.2%) and metal products (+9.0%) were among the most notable gainers.
The only two groups that posted losses were lumber and millwork products and agents and brokers.
Wholesalers of lumber and millwork products saw their revenues fall 2.9% to $13.9 billion in 2006, the second annual decline in a row, mostly due to the slowdown in the US housing market, lower lumber prices and a strong Canadian dollar.
Agents and brokers also recorded their second annual decline in 2006, down 9.5%. The drop is mostly attributable to weak growth for agents and brokers of personal and household goods as well as building materials and supplies. Together, these two groups account for roughly one-quarter of the revenues for this trade group.
Wholesale gross margins edged up
As a percentage of total operating revenue, gross margins averaged 19.1% in 2006. Gross margins reflect how successful wholesalers are at maximizing revenues while paying the lowest price for goods they buy for resale. A change in gross margins implies that the cost of buying goods (cost of goods sold) increased but not in the same proportion as revenues.
Except for agents and brokers, who by definition do not take title of goods they resell, 9 of the remaining 16 trade groups have posted higher gross margins than the overall average of 19.1%. In particular, gross margins that were well above the average were posted by wholesalers of apparel (35.7%), office and professional equipment (35.2%), household and personal goods (30.8%) and motor vehicle parts and accessories (28.4%).
Wholesalers of petroleum products (4.6%), motor vehicles (10.1%) and farm products (15.2%) recorded the three lowest gross margins.
Ontario's wholesalers recorded the highest gross margin in 2006
Ontario's wholesalers, who account for around 42% of all wholesale revenues in Canada, recorded the highest gross margin in 2006. Gross margin for wholesalers in Ontario as a percentage of operating revenue was 21.6%, well above the national average (19.1%). This was mainly attributable to high margins reported by wholesalers of apparel, household and personal goods and office and professional equipment.
Wholesales in Quebec (21.1%), Manitoba (20.6%) and British Columbia (20.0%) also posted gross margins higher than the national average.
Wholesalers in New Brunswick, Alberta and Newfoundland and Labrador were among those who reported gross margins below the national level.
Operating profit margin slightly higher in 2006
Despite a slowing down in the growth of wholesale revenues, profits have remained relatively stable. Overall, operating profit margins for wholesalers as a percentage of total operating revenue increased from 4.4% in 2005 to 4.7% in 2006.
Farm product wholesalers saw profits increase from $686.4 million in 2005 to $1.2 billion in 2006, an increase of 68.0%. Total operating revenues, driven by higher revenues from grains and live animals, rose 4.0% to $18.1 billion. This gain in 2006 followed two years where profits edged down for wholesalers of farm products.
Despite these increases, some major wholesale industries did not fare as well in 2006 as in 2005. These included computer and other electronics products, pharmaceutical products and apparel industries.
Wholesalers in Manitoba recorded the highest gain in operating profit
Among the provinces, only Manitoba (+51.6%), Nova Scotia (+20.2%), Ontario (+16.7%) and Alberta (+16.0%) posted gains greater than the Canadian average (+10.9%).
The provinces registering the sharpest contractions in operating profit were Prince Edward Island (-22.8%), New Brunswick (-22.1%) and Saskatchewan (-8.9%).
Available on CANSIM: table 081-0005.
Definitions, data sources and methods: survey number 2445.
For general information or to order data, contact Client Services (613-951-3549; toll-free 1-877-421-3067; wholesaleinfo@statcan.gc.ca). For additional information, or to enquire about the concepts, methods or data quality, contact Pierre Desjardins (613-951-9682), Distributive Trades Division.
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