To limit the rise in grocery prices, we need less concentration and more competition in the sector. Quite a challenge for an industry that has gone from eight to five big players in less than 30 years.
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This is what emerges from a study by the Competition Bureau published on Tuesday and which relies on four main recommendations.
We must “support the arrival of new types of businesses in the grocery sector and expand consumer choice,” the study recommends, among other things.
At the same time, the Bureau recognizes its difficulty in ensuring healthy competition.
“When a large grocer purchases a small number of stores in an urban setting, it is often difficult for the Bureau to stop him,” the report reads.
This is an admission of mistakes made in the past that have led to significant concentration in the supermarket sector, according to economist DT Cochrane.
“The big ones have bought so many small ones over the years that the Bureau recognizes that it has not been able to keep up,” said this employee of the organization Canadians for Tax Fairness.
screenshot from Competition Bureau report
great focus
Today, the Canadian market is dominated by Loblaw (Provigo, Maxi), Empire (IGA) and Metro, as well as Walmart and Costco.
In 1986, the report notes, there were eight major players: Loblaw, Sobeys, Metro, IGA, Safeway, Steinberg, Provigo and A&P.
The more concentrated an industry is, Cochrane points out, the more it will tend to raise its prices.
“It’s not so much that they’re colluding. But there are so few of them that they just have to look at what the others are doing. Are you raising your price by $1? Good me too! “, he summarizes.
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“Excessive profit”
In order to measure the lack of competition between supermarkets, the study looked at their gross profit margins.
Because if prices increase, it is not always due to a lack of competition. But it is when prices and margins rise at the same time.
“We have observed that gross margins for food products from Canada’s major grocers have generally increased modestly, but significantly, over the past five years,” the report said.
For DT Cochrane, this statement is a “pleasant surprise” and proof that grocers are making excessive profits.
“They raise their prices on top of increasing profits on each item sold. It’s the very definition of excess profit,” he said.
The simple solution? Tax this profit and pass it on to everyone. Because the other solution, to increase the number of grocers, will take time. Much of the time.
“We are talking about many years against an instant solution,” he summarizes.
Under the magnifying glass
In addition to increasing the number of players in the market, governments should also promote “the growth of independent grocers” and “the entry of international grocers into the Canadian market”.
We also mentioned the idea of harmonizing the display of unit prices to make comparisons easier from one place to another.
The fourth recommendation relates to real estate and how the big chains are maneuvering to make it “difficult, if not impossible, to open new grocery stores”.
“This solution is excellent,” comments Sylvain Charlebois.
In some cities, we often see large brands buying land simply to prevent competition from settling on the other side of the street, says the director of the Laboratory of Analytical Sciences in Agrifood at Dalhousie University.
“The more we dwell on the regional context, the more we will discover things. We must not just look at all the players on the market, but also try to understand what is happening in Joliette, Anjou or Granby,” he said.
Fiscal year 2022
Loblaw: $56.5B in sales / $2.26B in profit
Empire: $30.2B in sales / $746M in profit
Metro: $18.9 billion in sales / $922 million in profit