Canada’s grocery industry doesn’t give consumers enough choice, Competition Bureau finds

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Canada’s retail grocery industry is too concentrated to give consumers adequate choices, lower prices and higher-quality goods and services, according to a new report from Canada’s consumer watchdog.

The study of the grocery market launched this past October and released Tuesday by the federal Competition Bureau makes a number of recommendations to government on how to address the issue, including introducing policies to encourage international retailers to enter Canada and boost competitiveness of the sector.

“Governments at all levels need to take steps to encourage and support more grocery competition in Canada,” the report states. “… Canada needs solutions to help bring grocery prices in check. More competition is a key part of the answer.”

The bureau launched its evaluation of the grocery market at a time when food prices have been rising at a pace not seen in this country in 40 years. In the past two years alone, grocery prices have gone up by roughly 18 per cent, angering consumers and attracting increased scrutiny of the industry.

However, the bureau said that the study was not investigating any allegations of wrongdoing.

But the report also called out a lack of complete information from industry players. In market studies such as this one, the federal competition watchdog relies on information that companies submit on a voluntary basis. In this case, co-operation on requests for such information “was not fulsome,” according to the report, with some companies “reluctant to share information with the bureau.” The bureau has asked for changes to the laws to give it more power to collect information.

The report makes four main recommendations on actions that federal, provincial and territorial governments could take to improve the competitiveness of the sector:

• Creating a “Grocery Innovation Strategy” to encourage new types of grocery businesses, including those selling food online, to launch in Canada.
• Introducing policies both to strengthen independent grocers’ ability to compete, and also to encourage new competition from the entry of international retailers into Canada.
• Requiring harmonized price listings that would allow shoppers to more easily compare prices of similar items at various retailers on a per-unit basis. (For example, explaining how a price of an item breaks down per 100 millilitres so that prices are easily comparable across package sizes.) Requirements for this type of unit-price listing currently only exist in Quebec. This can make it easier for consumers to spot “shrinkflation,” when the size of a product is reduced although it is being sold at the same price.
• Limit controls on the use of real estate to make it easier for new stores to open. Currently, such controls include lease agreements in which a landlord might agree not to allow competitors to open stores nearby, such as in the same mall; or sales agreements that restrict the opening of a grocery store in a location, for example when a retailer sells a store but plans to open a location nearby and wishes to limit competition in the area. Nearly one-quarter of Canadians surveyed by the bureau said they have only one or two grocery stores within 15 minutes of their home. The report points out that Australia, New Zealand and Britain are examples of countries where property controls have been curtailed.

Food prices have been affected by a number of factors, including higher costs for commodities, packaging materials and transportation, supply chain snags, and Russia’s invasion of Ukraine.

“But we have also seen a longer-term trend that predates those events, of Canada’s largest grocers increasing the amount they make on food sales,” the report states.

The bureau found that gross profit margins on food have gone up “by a modest yet meaningful amount” over the past five years. Profit margins have been a hot topic as food inflation has had a profound impact on household budgets. The report stated that margins have increased by one to two percentage points since 2017, but did not specify whether profit margins have expanded since 2020, amid high food inflation.

Canada’s grocery industry has undergone significant consolidation over the years, and five grocers now control roughly 80 per cent of the retail market. The report points out that Canada’s three largest grocers – Loblaw Cos. Ltd. L-T, Sobey’s parent Empire Co. Ltd. EMP-A-T and Metro Inc. MRU-T – last year made profits totalling more than $3.6-billion on more than $100-billion in sales. (Those companies each own a number of grocery chains, including discount stores No Frills, FreshCo and Food Basics, respectively.)

The bureau has allowed such consolidation by not standing in the way of mergers, with chains such as Safeway, A&P, IGA, Provigo and others being bought up by rivals in recent decades. In its report, the bureau states that stopping such deals can be difficult under existing competition laws, and argues that laws should be updated to give it the “tools required to safeguard competition” in grocery retail.

“The industry welcomes further competition,” said Karl Littler, senior vice-president of public affairs for the Retail Council of Canada, an industry group whose members include Canada’s largest grocers. The group does not object to “reasonable policy solutions” to support smaller independent retailers or to attract more competition, he added. “The greatest inhibition to new entrants from Canadian grocery right now is that it already has very competitive prices.”

Gary Sands, vice-president of government relations with the Canadian Federation of Independent Grocers, said his group will be pushing governments to act on the report’s recommendations to provide support for independent players.

“In the past, when we’ve been advocating for things, it hasn’t led in a lot of cases to constructive action,” Mr. Sands said “I’m hoping that because of the role of the bureau and how it’s perceived by governments and Canadians, that the report’s recommendations will be given extra weight.”

The lack of competition is even more pronounced in remote, Northern and Indigenous communities, where grocery prices generally are much higher than in urban centres, and where most large grocers either have no stores or have limited operations.

“As we have witnessed the highest cost-of-living increases seen in a generation, Canadians are recognizing the relationship between a lack of competition and rising prices,” Competition Commissioner Matthew Boswell said in a statement on Tuesday. “By acting now, governments at all levels can take steps towards creating a more competitive grocery industry. Competition can help lower prices and make life more affordable for Canadians.”

The bureau also committed itself to “heightened vigilance and scrutiny” of the grocery industry; to supporting the implementation of a code of conduct that has already been under development to help govern the relationships between retailers and their suppliers; and to revisiting the subject in three years to monitor progress.

Earlier this month, a parliamentary committee studying the causes of food inflation recommended that if the Competition Bureau report found evidence of “excess profits” on food among the large grocery chains, the federal government should consider a windfall tax on “large, price-setting corporations.” The report did not specify whether profits in the industry are excessive and a windfall tax was not among the bureau’s recommendations.

The report was published shortly after the bureau announced a major step forward in a years-long investigation into an alleged industrywide conspiracy to fix the price of bread in Canada: last week, one of the country’s largest bread producers, Canada Bread, admitted to participating in the scheme and agreed to pay a $50-million fine. A number of other companies, including some of Canada’s largest grocery retailers, remain under investigation and have denied any wrongdoing.