People shop in the produce area at a Loblaws store in Toronto on May 3, 2018.Nathan Denette/The Canadian Press
February can be the cruellest month for Canadians at the grocery store.
The Jan. 31 expiry of an annual three-month freeze imposed by the country’s largest supermarket chains on supplier prices often leads to sudden spikes in the average food bill. And this year is unlikely to be any different.
“We’re looking at mid-single-digit, or thereabout, increases for some products starting in February,” Metro Inc. chief executive officer Eric La Flèche said last week. “We’re negotiating as best we can and delaying as much as we can some of the increases requested by our suppliers. Unfortunately, there will be some prices starting to go up.”
More price hikes at the grocery store will only feed Canadians’ anger toward the big three domestic supermarket chains – Loblaw L-T, Sobeys EMP-A-T and Metro MRU-T – that account for about 60 per cent of all retail food sales in this country. The price of food bought at grocery stores rose much faster than the overall inflation rate in both 2022 and 2023, leading to charges that the big chains were padding their profit margins at consumers’ expense. That trend appears set to continue in 2024.
As affordability issues move to the top of Ottawa’s agenda, Innovation Minister François-Philippe Champagne wrote last week to Competition Commissioner Matthew Boswell urging him to use new powers recently granted by the Trudeau government to crack down on “abusive practices” in the grocery sector.
The Competition Bureau’s 2023 inquiry into grocery prices, completed before Ottawa granted it power to compel confidential information from grocers on their practices, found the chains increased their gross margins by “a modest yet meaningful amount” in recent years. But without the power to subpoena documents, it could not determine why grocers had been able to increase their margins.
Were they really gouging consumers, or had they just become more efficient?
The bureau nevertheless deemed that higher margins were “a sign that there is room for more competition in Canada’s grocery industry.” It recommended that Ottawa encourage a foreign grocery player to enter the Canadian market, saying “their presence would likely increase competition, lower prices, increase choice and bring about higher levels of innovation.”
Mr. Champagne seized on this idea and has been reaching out to invite foreign grocery companies to set up shop in Canada. In December, he likened his approach to lure a foreign grocer here to the cold call he made to Volkswagen that eventually led it to announce plans to build an electric-vehicle battery plant in St. Thomas, Ont.
The Volkswagen VWAGY deal involves $13.2-billion in production subsidies from the federal and Ontario governments. It remains to be seen whether Mr. Champagne would be willing to offer financial incentives to bring another foreign grocery player to Canada. Let’s hope that is not the case.
Walmart WMT-N, Costco COST-Q and Amazon AMZN-Q, which owns Whole Foods, all entered the Canadian market years ago without government help. They now account for about 20 per cent of the Canadian grocery market. It is far from clear that the arrival of another foreign supermarket chain would have much impact on grocery prices in Canada.
In an e-mailed statement, Mr. Champagne’s press secretary Audrey Champoux said, “it is widely accepted that the entry of Aldi and Lidl in the [British] market has offered more affordable alternatives,” suggesting the two German-based discount chains are among the foreign players the minister is courting to come to Canada.
He should know that British food prices have risen at about twice the Canadian rate in the past few years, Aldi and Lidl’s presence notwithstanding.
Canada’s domestically owned grocers each operate discount banners whose prices would be tough for any newcomer to Canada to beat on a sustainable basis, given their existing supplier and distribution networks. Loblaw’s No Frills, Sobeys’ FreshCo and Metro’s Food Basics chains are a big reason that, overall, Canadians still spend less of their income on groceries than consumers in most other developed countries, outside of the United States.
What’s more, the main reasons for the U.S. advantage – lower wages for supermarket workers, and a market nine times bigger – would be absent in Canada regardless of how many foreign players operated here.
The fact that Walmart (together with its Sam’s Club division) holds about 30 per cent of the U.S. grocery market, but only about 8 per cent of the Canadian market, suggests that the big domestic chains are not the fat cats their critics contend they are. Granted, the bread price-fixing scandal that rocked the sector a few years ago has left many Canadians skeptical. But there is far more evidence of robust competition than price-gouging or collusion in Canada’s grocery market.
That is not to say more competition would not be better. But Mr. Champagne’s bid to lure another foreign supermarket chain to Canada sounds more like political grandstanding than a serious evidence-based policy proposal. Where’s the beef?
Besides, there are no ownership restrictions that prevent a foreign grocer from entering Canada or taking over a large domestic grocery chain. If grocery margins really were fatter here, you can bet that more foreign chains would be stampeding across the border or across the Atlantic to take a bite out of the Canadian market.
If Mr. Champagne truly had the interests of Canadian consumers at heart, he would open up our telecommunications, banking and airline sectors, where foreign ownership restrictions really are an obstacle to competition. Speaking of fat cats.