Business

Canada's grocery business doesn't have enough competition — and shoppers are paying the price, report finds

Canada's grocery business is controlled by large players and needs government assistance to encourage new entrants to bring down prices, a report from the Competition Bureau says.

Report is the results of months-long probe by competition watchdog

Calls for more competition to combat soaring grocery prices

10 months ago
Duration 2:23
A new report says there's a lack of competition in the grocery business — and consumers are paying the price. Right now, there are just five big players dominating the market in Canada.

Canada's grocery business is controlled by large players and needs government assistance to encourage new entrants to bring down prices, a report from the Competition Bureau says.

The report, published Tuesday, is the result of a probe that Canada's top competition watchdog launched last year, when concern over food prices hit a fever pitch.

The bureau spent months examining many aspects of Canada's grocery business, which is dominated by three domestic giants — Loblaws, Metro and Sobeys owner Empire — along with foreign players like Walmart and Costco.

Together, those 5 companies combine for more than three-quarters of all the food sales in Canada.

In the report, the bureau found the industry is not as competitive as it could be, and consumers are paying the price for it.

"Canada needs solutions to help bring grocery prices in check," the bureau said. "More competition is a key part of the answer."

To that end, the bureau recommended four broad policies aimed at spurring competition in the sector. They are:

  • To establish a Grocery Innovation Strategy aimed at supporting the creation of new types of grocery businesses, specifically ones that only sell online.
  • Policies from all levels of government to encourage new independent and international players to set up shop in Canada.
  • Introducing legislation to mandate harmonized unit pricing requirements, which will make it easier for consumers to comparison-shop for deals.
  • Limit property controls, which currently restrict how real estate can be used by competing grocers, making it difficult, or even impossible, for new stores to open.

"Change will take time," the bureau said. "These solutions will not bring Canadians' grocery bills down immediately. But by acting now, governments at all levels can take steps toward creating a more competitive grocery industry in Canada."

The bureau's study found that while most countries are currently grappling with high prices for groceries, it's a different situation in Canada because the market is more consolidated than it is elsewhere. 

A big problem is that in Canada, the main chains own discount rivals more than they do elsewhere.

"Loblaws owns No Frills and Maxi, Sobeys owns FreshCo, and Metro owns Food Basics and Super C," the bureau said. "This is different from other countries where large grocers compete against lower-priced options, like Aldi and Lidl."

Illustration of different Canadian grocery brands and who owns them
Canada's three big grocery chains own a slew of brands up and down the value chain. (Competition Bureau)

Big chains have unfair advantages

Independent grocery chains are often a great alternative, but they don't take up as big a portion of the market as they do elsewhere, the bureau said. That's because many of them are forced to buy their wares from the big chains in the first place.

"According to independents, this dependency makes it more difficult for them to compete on price," the bureau said.

Large chains also get paid by suppliers to put their products on shelves in the first place. 

"Independent stores generally aren't, and that can put them at a disadvantage," the bureau said.

Even finding real estate to open a new store can be a challenge, because they generally need a large, accessible space with the capacity for parking.

"Many of the locations that could support a new grocery store are already controlled by the grocery giants," the report found. Known as restricted covenants in contracts like leases, such clauses can hinder competition by making it impossible for someone else to use the space to open a grocery store, even if the original grocery store closes down.

While the bureau's report covered a lot of ground, it was limited in its scope in that by design it did not delve into some parts of the grocery supply chain that might contribute to higher prices — specifically the relationship between retail stores and their suppliers.

"We did not set out to explain or understand all the reasons why grocery prices have increased," said Anthony Durocher, deputy commissioner at the bureau.

It was also limited in that ultimately, the bureau doesn't have the power to force companies to disclose information.

"While many grocers were happy to speak with us, others were more reluctant to share information," the bureau said. "This limited our ability to fully answer some questions that are top of mind for Canadians."

That's mostly because unlike many of its international counterparts, "the Competition Bureau does not have formal power to compel information from market participants."

Foreign discount chains weigh in

While some Canadian chains may have been reticent to talk, the bureau said it heard opinions from a number of international grocery chains for their views on the Canadian market.

"We were told that while Canada is an interesting market, entry could be challenging," Durocher said. "Some international players view the Canadian market as tough to break into given the strength of the domestic large chains."

A shopper holds an Aldi shopping bag.
German discount food retailer Aldi has locations across Europe, China, Australia and the U.S. but none in Canada. (Bloomberg)

The Retail Council of Canada, which speaks on behalf of Canada's big grocery chains, says the reluctance of foreign discount chains like Aldi and Lidl to open up shop in Canada speaks to how competitive the market already is.

"Basically they said ... it's a fiercely competitive market already and went further to say ... 'I'm not sure we could compete on price,'" spokesperson Karl Littler said in an interview.

Overall, Littler says the bureau's report is "further evidence against the greedflation smear that we faced." That's a reference to allegations that major chains were unduly profiting from inflation by raising prices more than their costs had increased, something the industry has repeatedly denied.

"There was a lot of hysteria about this," Littler said, noting that even the bureau found the industry to have "modest profit levels, not the excess that some have alleged."

While the industry says there is fierce competition between the major players, Keldon Bester, a competition expert and co-founder of the Canadian Anti-Monopoly Project, says it's clear that Canada's grocery business is not as competitive as it could be.

"The waves of consolidation that we've allowed to happen have really reduced the diversity and dynamism of grocery markets for Canadians, especially in rural areas," he told CBC News in an interview. A former staffer at the bureau himself, he says he sympathizes with their plight because, "our law doesn't really set them up for success by not taking these mergers seriously," but says "the first step is stopping the further consolidation of markets that we know aren't delivering as much benefit as they could be."

The bureau noted that the level of competition in Canada very much depends on where you live, as big cities generally have a lot more options for shoppers, whereas remote and rural communities are often beholden to whatever stores are available.

Shopping at one of the major chains in Calgary recently, shoppers told CBC News that while they felt like they had plenty of options, they doubted that new players would be able to do much to bring down prices.

A photo of Calgary shopper Mary Januszczak
Mary Januszczak says even if a new grocery store were to open, she doubts it would save her much money because of the expense of having to drive to it. (CBC)

"Right now, I find in the flyers, they're all the same," said Mary Januszczak. "Everybody's copying each other — these guys have the same price as Safeway, Save-On [has] the same price." "It used to be … somebody would have something better on sale, and you'd go over there. Now everybody's the same."

If a new store were to open, Januszczak said it would take a lot for her to go there, due to the convenience factor of her current store. "Even if they're cheaper, I'd spend more money on gas to get there."

Shopping at the same store, Kalvin Lau said he doubted there is much that can be done about higher prices.

"As long as the grocery chains dominate the market, I don't think there will be huge change," he said.

ABOUT THE AUTHOR

Pete Evans

Senior Business Writer

Pete Evans is the senior business writer for CBCNews.ca. Prior to coming to the CBC, his work has appeared in the Globe & Mail, the Financial Post, the Toronto Star, and Canadian Business Magazine. Twitter: @p_evans Email: pete.evans@cbc.ca

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