Canada’s grocery sector needs better competition to help keep food prices low and encourage new entrants, the country’s competition watchdog has found.
In a much-anticipated study released Tuesday, the Competition Bureau says concentration in the grocery industry has increased in recent years, with larger grocers increasing the amount they earn from food sales.
Most Canadians buy groceries from stores owned by a handful of grocery giants, the document points out. The country’s three largest grocers — Loblaws, Sobeys and Metro — collectively reported more than $100 billion in sales and $3.6 billion in profits last year.
“We have observed that the gross margins of food products from Canada’s major grocers have generally increased modestly, but significantly, over the past five years,” the report noted. This long-term trend predates the supply chain disruptions experienced during the pandemic and the current inflationary period. »
The Competition Bureau believes this signals the need for greater competition in the Canadian grocery industry.
“Canada needs solutions to control the price of the grocery basket,” the report continues. Increasing competition is a key part of the solution. »
Read also : More and more exclusive discounts at grocers
The bureau offers four recommendations to improve competition and lower prices, including an innovation strategy to support new food companies and expand consumer choice.
It also recommends that governments encourage the growth of independent grocers and the entry of international grocers into the Canadian market, standardize unit prices to help Canadians easily compare grocery store prices, and limit real estate controls in the grocery industry that make it difficult, if not impossible, to open new stores.
“We must have the power to act”
The Bureau recognizes that it must also approach its work in the grocery industry with “more vigilance and surveillance” to ensure that Canadians benefit from greater choice and more affordable grocery baskets. .
“We need to be more vigilant when investigating and taking enforcement action in relation to allegations of wrongdoing, and we need to have the power to act when issues arise. »
In a survey of consumer attitudes and opinions toward the grocery industry, some Canadians said the country’s laws do not go far enough to prevent anti-competitive agreements, while others felt that the Competition Bureau had simply not done a sufficient job of enforcing these laws.
Increasingly concentrated sector
When the Competition Act was introduced in 1986, there were at least eight major grocery chains in Canada, the study points out. Each belonged to a different society.
Today, five major chains are active in Canada: Loblaw, Sobeys, Metro, Costco and Walmart.
The competition watchdog is committed to taking steps to better promote competition in the Canadian grocery industry, including providing a pro-competitive perspective to support the implementation of the code of conduct Canadian in the grocery sector.
He also pledged to review the findings of his study in three years to assess the progress of the recommendations made to the government.
The highly concentrated nature of the grocery industry in Canada has come under intense scrutiny in recent years.
The three major grocery chains have been embroiled in an alleged bread price-fixing scheme, which observers say has sparked mistrust in the grocery industry.
Big grocers have also been accused of wage fixing after simultaneously cutting their pandemic bonuses for frontline workers. Behavior that the House of Commons Industry and Technology Committee compared to “cartel-type practices” in a June 2021 report.
Still, Canada’s grocers argue that consolidation increases efficiency and provides consumers with more value.
Grocery executives have vehemently denied accusations of price gouging and alleged greed, saying their food margins have remained modest — despite soaring profits.
Discourage excessive margin increases
However, the House of Commons Standing Committee on Agriculture and Agri-Food has launched the idea of a windfall tax on these profits.
In a report on grocery affordability filed earlier this month, he said that if the Competition Bureau finds evidence that large grocery chains are generating excess profits on groceries, the government should consider a windfall tax to “deter excessive increases in profit margins for these products.”
Meanwhile, a grocery industry committee is continuing to develop a new code of conduct that would help level the playing field between large grocers, independent stores and suppliers.
Food prices have seen a massive spike in Canada since November 2021 – the last month for which annual food inflation was below 5.0%.
Since then, grocery prices have steadily increased by almost 10.0%, peaking at 11.4% on an annual basis last September, and again in November, before easing somewhat in recent months. .
Statistics Canada reported Tuesday that prices for goods sold in grocery stores rose 9.0% year over year in May.