78.5% Increase in Profit!?!

Last week, it was reported that Festi’s profit increased by 78.5% year-on-year. Social media quickly took notice and expressed outrage at this greed while people are struggling with high loan interest rates and inflation. Understandably so—because a 78.5% increase in profit year-on-year looks quite substantial. However, when you take a closer look, as a simple percentage doesn’t tell the whole story—let’s examine this further.

“The profit for the first six months of the year amounted to nearly 1.2 billion ISK, increasing by 78.5% year-on-year, as it was 647 million ISK during the same period last year,” reads the mbl.is report. That’s about 550 million ISK more in profit. That is a considerable amount by any measure. For comparison, it’s roughly the same amount that was allocated to the Tourist Site Development Fund for the entire year last year. The consumers of the country are essentially paying 550 million ISK more than they did during the same period last year.

A 78.5% increase. 550 million ISK more. Greed, isn’t it? Let’s pause for a moment—this isn’t the whole story. The report also mentions that: “Product sales amounted to 36 billion ISK, increasing by 5.4% year-on-year, as they amounted to 34 billion ISK the year before.” A profit of 1.2 billion ISK on 36 billion ISK in sales amounts to a 3.3% profit margin. Inflation is at 6.33%. Food and beverages have increased by 6.24%, with the categories that have increased the most being meat products. Beef and pork have increased by just over 8%, while lamb has risen by a whole 18.35%. Potatoes have gone up by more than 21%, candy by over 10%, and chocolate by almost 16%!

Inflation is insidious, especially when it has been high for a long time. We constantly need to update our price awareness in relation to our disposable income. If we were previously spending 25% of our disposable income on housing and are now paying 100,000 ISK more due to inflation or high interest rates, that doesn’t really tell us anything unless we look at the percentage of our disposable income. We might be paying more, but with devalued krona. We might even be paying a smaller percentage of our disposable income today for housing than we did 5 years ago. The current situation is that wage growth is at 6% per year. Lower than inflation—which means, on average, our disposable income is shrinking.

Given all of this, is a 78.5% increase in profit—550 million ISK more—greed? Considering that this is only 3.3% of the total and the main culprits of inflation are found elsewhere, it’s hard to definitively say so. But a 78.5% increase does look bad. It’s easy to jump on the greed bandwagon with numbers like this. There are certainly increases, but I would say they fall within the margin of uncertainty where it’s difficult to accuse people of greed. Statistics can be misleading in such cases—which is not helpful for the discussion.