Competition Watchdog Demands Radical Opening of Canada’s Grocery Market

Canada’s Competition Bureau has released a new report calling for increased competition in the country’s grocery market as a means to control inflation. The report, titled the Retail Grocery Market Study Report, emphasizes the need for government policies that support independent grocers. The three largest grocers in Canada, Loblaws, Sobeys, and Metro, collectively earned over CAD100bn ($75.6bn) in sales and CAD3.6bn in profits in 2022. These companies have faced allegations of keeping prices artificially high, with grocery inflation reaching 8.9%, more than double the general inflation rate of 3.6% in May.

The Competition Bureau, which has been working on the report since October, highlights multiple factors contributing to rising grocery prices, including higher input costs, the conflict between Russia and Ukraine, and disruptions in the supply chain. However, the report also identifies a long-term trend of major grocers in Canada increasing their profit margins on food sales. To address this issue, the Competition Bureau suggests that increased competition is a crucial part of the solution.

Nevertheless, the Bureau acknowledges the challenges associated with entering the Canadian grocery industry. It cites the high costs and difficulties in establishing new grocery stores, as well as the entrenched market position of the industry’s major players. Over the years, market concentration has intensified, making it increasingly difficult for new businesses to compete effectively.

The report proposes the implementation of a “Grocery Innovation Strategy” aimed at supporting the emergence of new grocery businesses and expanding consumer choice. It emphasizes the role of competitive markets in empowering consumers, reducing prices, improving product quality, fostering innovation, and introducing valuable new products to the market. Additionally, the report recommends provincial and territorial governments consider introducing accessible and harmonized unit pricing requirements to enable consumers to compare prices effectively and make informed purchasing decisions.

To further promote competition, the Competition Bureau suggests limiting property controls in the grocery industry and potentially banning their use. Property controls currently restrict how competing grocers can use real estate, making it challenging for new grocery stores to enter the market and reducing competition in local communities.

The report also emphasizes the importance of heightened vigilance and scrutiny to address allegations of price gouging. It calls for thorough and swift investigations into wrongdoing and asserts the need for the Bureau to possess adequate authority to take action when necessary.

However, Dr. Sylvain Charlebois, a prominent commentator on Canada’s grocery industry from the Agri-Food Analytics Lab at Dalhousie University, believes the report should have directly addressed the issue of an apparent price-fixing culture within the industry.

The Retail Council of Canada, a trade body representing the industry, contends that the report overlooks certain key aspects and lacks focus on food specifically. It argues that food margins remain stable, and Canada’s food inflation is relatively low compared to other countries. The association attributes price increases primarily to factors such as pharmaceuticals, health, beauty, operating efficiencies, as well as global issues like war, extreme weather, and rising fuel prices affecting grocery inputs. It suggests that while increased competition could potentially lead to lower prices, foreign grocers are not showing interest in entering the Canadian market due to the fierce price competition among domestic grocers.