The Competition Bureau announced on Tuesday that it’s investigating Canada’s major grocery chains for alleged anti-competitive practices, citing suspiciously rapid price hikes that can’t be blamed on the pandemic.
The government agency also says the grocery industry needs more competition.
“The Canadian grocery industry is concentrated,” the Competition Bureau Retail Grocery Market Study Report said in a study. “Many wonder whether a lack of competition is the reason why grocery prices are increasing at the fastest rate in more than 40 years.”
The report named Loblaws, Sobeys and Metro as the three largest grocery chains, noting each of them operate over 1,000 stores nationwide, including subsidiaries, and collectively reported more than $100 billion in sales last year.
The report—which also named Walmart and Costco as significant players—said the three largest chains had combined profits of $3.6 billion in 2022.
It also recommends government intervention as a means for creating “new types of grocery businesses”; enticing international grocers to enter the Canadian market while encouraging growth among independents; introducing harmonized unit pricing; and curtailing property controls that hamper new competition.
The agency conceded that rapid price escalation isn’t necessarily an outcome of anti-competitive behaviour, and that it’s aware the grocers’ overhead costs—namely food procurement expenses—rose during the pandemic.
However, the government agency is dubious that the three chains’ gross profit margins increased “by a modest yet meaningful amount over the last five years,” well before the pandemic began wreaking havoc on supply chains and inflation reached a 40-year high.
“These margins subtract the costs that grocers incur to buy products, and show how much a grocer makes on each dollar of sales,” the report said.
“The fact that Canada’s largest grocers have generally been able to increase these margins—however modestly—is a sign that there is room for more competition in Canada’s grocery industry.”
Christopher Taylor, a treasury finance executive and market analyst, agrees, telling True North that elevated inflation and rising interest rates have long curtailed consumer spending, and that should have already prompted grocers to lower prices.
But, describing Canada’s largest grocery chains as an oligopoly, Taylor suspects the reason they haven’t is because there’s no competition to nip at their heels.
“They will eventually have to drop prices, but the grocers haven’t yet,” Taylor said.
“You have to create competition for prices to start to come down, but if there are only three or four chains of grocery stores, they earn oligopoly prices.”
According to the report, 81% of Canadians buy groceries one to three times a week, of whom 49% shop at Loblaws and its subsidiaries; 28% at Sobeys and other stores it operates; 25% at Walmart; and 22% at Metro-operated grocery stores.
But the study also revealed that 49% of Canadians buy their groceries from Loblaws and its subsidiaries.
In 2019, despite Loblaws reporting profits in excess of $200 million during the fourth quarter of 2018 alone, the Liberals agreed to chip in $12 million towards the company’s installation of low-emission refrigeration systems at 370 of its stores.
Franco Terrazzano, federal director of the Canadian Taxpayers Federation, isn’t surprised by such instances of what he calls corporate welfare.
“Mom and pop shops don’t have lobbyists going to Ottawa trying to get taxpayers’ money, but big corporations sure do,” he said.
