Rising grocer profit margins underscore need for competition, regulator finds

Canada’s grocery sector wants extra competitors to assist hold meals costs down, give buyers extra alternative and encourage new entrants, the nation’s competitors watchdog says.

In a extremely anticipated research launched Tuesday, the Competition Bureau stated focus within the grocery trade has elevated in recent times and the most important grocers have elevated the quantity they make on meals gross sales.

Most Canadians purchase groceries in shops owned by a handful of grocery giants, with Canada’s three largest grocers — Loblaws, Sobeys, and Metro — collectively reporting greater than $100 billion in gross sales and $3.6 billion in income final 12 months, the research discovered.

Food gross margins have usually elevated over the past 5 years by a “modest yet meaningful” quantity of 1 or two share factors, the Competition Bureau stated.

“This longer-term trend predates the supply chain disruptions faced during the pandemic and the current inflationary period,” it stated.

That’s roughly equal to $1 to $2 on every $100 that Canadians spend on groceries, the research discovered.

The regulator stated this alerts the necessity for extra competitors in Canada’s grocery trade.

“Canada needs solutions to help bring grocery prices in check,” the research stated. “More competition is a key part of the answer.”

The competitors watchdog proposed 4 suggestions to enhance competitors and decrease costs, together with an innovation technique to help new grocery companies and increase client alternative.

It additionally recommends governments encourage the expansion of impartial grocers and the entry of worldwide grocers into the Canadian market, standardize unit pricing to assist Canadians simply examine costs, and curb actual property practices within the trade that restrict competitors, reminiscent of placing covenants on bought land that stops any new grocer from working there.

Gary Sands, senior vice-president of public coverage with the Canadian Federation of Independent Grocers, stated the research acknowledges that extra must be executed to help impartial grocers in Canada.

“They’ve drawn attention to some of the challenges that are faced by independent grocers,” he stated. “There are a lot of barriers to entry that make it hard to compete with the chains and this will hopefully lead to some changes.”

Karl Littler, senior vice-president of public affairs with the Retail Council of Canada, stated the research proves that main grocery chains haven’t made an extreme revenue on meals.

“We see this as another nail in the coffin of the greedflation hysteria,” he stated, referring to allegations that increased costs in the course of the pandemic have been as a result of grocery chains engaged in worth gouging and so-called greedflation — elevating costs by greater than the speed of inflation.

However, the Bureau stated its lack of ability to compel info as a part of the research restricted its entry to some particulars and highlighted the necessity for extra formal information-gathering powers.

It stated it additionally must strategy its work within the grocery trade with “heightened vigilance and scrutiny” to make sure Canadians profit from higher alternative and extra inexpensive groceries.

“We need to thoroughly and quickly investigate allegations of wrongdoing, and we need the power to act when issues arise,” the research stated.

In a survey of client attitudes and opinions concerning the grocery sector, some Canadians stated the nation’s legal guidelines do not go far sufficient to cease offers which are dangerous for competitors, whereas others felt the Competition Bureau has simply not executed a ok job imposing these legal guidelines, the research stated.

When the Competition Act was launched in 1986, there have been not less than eight giant grocery chains throughout Canada, the research stated. Each was owned by a distinct firm.

Today there are 5 giant chains that function in Canada: Loblaw, Sobeys, Metro, Costco and Walmart.

The competitors watchdog dedicated to taking steps to higher promote competitors within the Canadian grocery trade, together with offering a pro-competitive perspective to help the implementation of Canada’s grocery code of conduct.

It additionally dedicated to revisiting the findings of its research in three years to evaluate the progress on suggestions it has made to authorities.

The concentrated nature of Canada’s grocery’s sector has come below intense scrutiny in recent times.

The large three grocery chains have been embroiled in an alleged bread price-fixing scheme, which observers say has triggered mistrust of the grocery trade.

The giant grocers have additionally been accused of wage fixing after concurrently scrapping pandemic bonuses for front-line staff.

It’s behaviour the House of Commons trade committee likened to “cartel-like practices” in a June 2021 report.

Yet Canada’s grocers have argued that consolidation will increase efficiencies and offers shoppers with extra worth, whilst their income have climbed.

The House of Commons agriculture committee has floated the concept of a windfall tax on these income to “disincentivize excess hikes in their profit margins for these items.”

Meanwhile, a grocery trade committee is constant to hammer out a brand new code of conduct that will assist degree the taking part in subject between giant grocers, independents and suppliers.

Food costs have recorded a large spike in Canada since November 2021 — the final month for which grocery inflation was below 5 per cent.

Since then, grocery costs have constantly risen by near double digits, peaking at an 11.4 per cent year-over-year worth hike final September and once more in November earlier than easing considerably in current months.

Statistics Canada stated Tuesday grocery costs rose 9 per cent 12 months over 12 months in May.

This report by The Canadian Press was first printed June 27, 2023.