Consumers assume that price freezes are always to their advantage. Not sure. Every year, between 1er November and 1er February, grocers ask suppliers not to increase prices for very nebulous reasons.
This tacit agreement between grocers and suppliers, which likely began decades ago, does not benefit consumers in any way. In October, as suppliers renegotiate their contracts with grocers, prices are often adjusted upward, just before the three-month price freeze period. Now that the freeze period has ended, we should see food prices rise again, as Metro CEO Eric La Flèche said during his recent financial results conference. Price increases are likely to mainly affect non-perishable products, particularly those that line the aisles in the center of the store.
Food inflation undoubtedly remains a concern, but the real enemy is price volatility, and that is precisely what these periods of price freezes bring us. Sudden increases in food prices can surprise consumers and force them to temporarily abandon certain food categories, particularly healthier foods. Once the consumer perceives a food category as financially out of their budget, it will take some time for them to return to it.
For example, the largest month-to-month increase in food prices over the past 15 years occurred in November 2008, at 2.5%, followed by February 2011, at 2.2%. Statistics Canada also recorded above-average month-over-month food price increases in November 2016 (1.6%) and November 2022 (1.7%). Despite the seasonality factor, price freeze periods do not protect consumers on tight budgets, as evidenced by the increases in January 2016, January 2022, January 2020 and December 2018. Coincidentally, these three months of January, February and November saw the largest month-over-month food price increases in the last 30 years, with the exception of May. But we will come back to that.
The Minister of Innovation and Technology, François-Philippe Champagne, in his efforts to stabilize food prices in Canada, should analyze these periods of price freezes and target them as market distortion mechanisms which, ultimately account, harm consumers.
The often-given excuse is that grocers don’t have time to deal with price changes during the busy holiday season. This argument may have held water years ago, when grocers manually updated prices for each item. Today, digitized and electronically displayed prices call into question the need for such a price freeze period.
Now let’s go back to May. Recently, Loblaw informed its suppliers that their fees would increase again. In the food industry, suppliers must pay fees to grocers to do business with them. Fulfillment center fees will increase from 1.17% to 1.22%, and direct store delivery fees will increase from 0.36% to 0.38%. While these seem like small increases to most of us, they can add up to millions of dollars for providers.
These annual unilateral increases, imposed by Loblaw, will come into effect on April 28 without any dialogue or negotiation. While large multinationals like PepsiCo, Mondelez, Lactalis, Kraft-Heinz and Kellogg may adjust their prices to compensate for grocers’ higher fees, many smaller Canadian food manufacturers could struggle financially or even exit the industry. This leads to higher prices and less competition, both bad news for consumers.
To address these issues, we need more discipline and oversight, including the establishment of a mandatory code of conduct to ensure fair practices in the industry. We must act quickly to put an end to this madness.