The headline: ”Canada needs more grocery competition”

Our response:  No kidding

 

Everyone who works in this industry, except perhaps the leaders of the major retailers, think we need more competition. The balance of power is with five major retailers that control more than 85 per cent of the market, through their corporate and franchised stores.

 

Once we got past the immediate response to the headline, we read the rest of the report. The content is divided into the following segments:

 

1. Grocery competition in Canada
2. Domestic grocer margins
3. Property controls
4. Online grocery
5. Brining international players to Canada
6. How other countries have increased competition
7. Informing consumers
8. Canadian’s ideas for increasing competition

 

The report made the following recommendations:

 

1. Canada needs a Grocery Innovation Strategy aimed at supporting the emergence of new types of grocery businesses and expanding consumer choice.

 

2. Federal, provincial and territorial support for the Canadian grocery industry should encourage the growth of independent grocers and the entry of international grocers.

 

3. Provincial and territorial governments should consider introducing accessible and harmonized unit pricing requirements.

 

4. Provincial and territorial governments should take measures to limit property controls in the grocery industry, which could include banning their use.

 

My thoughts on these recommendations

 

#1-Not sure what this will be? Perhaps focus for online sellers of food that are not tied to major retailers?

 

#2-We agree as it pertains to independents but not international retailers. Yes, international retailers have expertise and infrastructure, but the profits will go elsewhere and we will just make it more difficult for suppliers.

 

#3-Nice to have but we do not see it changes the retail landscape or will make much of a change for consumers from store to store.

 

#4-Agree this should be changed going forward. Not sure how you can go back in time but as developments are built going forward, this needs to be part of the landscape to make it easier for independents and specialty stores.

 

Other thoughts

 

#1- Put resources/investments into distribution. It is a major cost of food in this country, and we have to believe more than other countries. Our relatively low population and diverse geography over six time zones do make distribution a challenge but there must be a better solution than what we do today.

 

#2- Explore Canadian content rules within categories to force these large retailers to carry products produced here. This reduces their leverage and ability to just bring something cheaper from somewhere else.

 

#3 Revisit Safe Food for Canadians Act to provide more realistic market sizes for producers and processors. Provincial markets are fine in the three largest provinces. Manitoba, Saskatchewan and Alberta should be a market as should be Atlantic Canada. We believe the reason is risk so why not make it fair? Ever tried to build a food business limited to Prince Edward Island? This would give processors a better chance at success and more leverage with retailers.

 

Highlights of the report

 

There is a good comparison of food inflation vs. all price inflation. We see food price inflation growing at a similar rate to all prices then in the summer of 2022 a gap begins to appear. Inflation is declining in all prices, however food hovers close to 10 per cent, whereas all prices drop to five per cent. If food is truly unique and global factors are impacting prices, we should see this in other countries to prove our Canadian retailers are telling the truth. It would have been beneficial to see more comparisons to other countries with the following food inflation chart.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Their argument is correct in that retailers make more cents per unit profit when inflation occurs in pricing, but their example uses mark up, not gross margin. Disappointing to see that lack of understanding.

 

Property controls

 

My first job at Loblaw was in real estate. I learned very quickly control over real estate was a huge part of the strategy for any retailer, regardless of the sector. If you have the best location and can prevent competitors, even small specialty stores, you will do the business. This is true even if you do not operate great stores or have the sharpest prices. We do need to explore the influence these large retailers have over locations and the impact on the rest of the value chain.

 

Online grocery

 

It is true this could be an opportunity for some disruption, but we probably missed the window to really change consumer behaviour. In fairness society was dealing with the pandemic and just trying to figure out how to get food produced and to consumers. If we had really provided some incentives to innovative people, we could have brought competitors to the market and consumers would have changed some habits.

 

The large retailers have responded and although more food is being bought online most of it goes through the same five companies. It will take a lot more work now to change the habits.

 

Bringing international players to Canada

 

It is interesting to see our own bureaucracy recommending the introduction of foreign competitors to the market. I am sure this will get some comments in a few retailers’ boardrooms. The report references Aldi in other countries having an impact on pricing. One important piece that is lost in that argument is how the existing retailers responded. Our understanding is that a huge amount of pressure was applied to suppliers to deliver lower costs to compete with a discounter. Might not be the solution we need in Canada.

 

Informing consumers

 

We agree unit pricing informs consumers, but it does not really help make the choice from store to store. It does help within the category, at the shelf. There are so many prices to remember and they do change. Many retailers do this now because they want you to buy their private label. We do not see this will change the overall situation much.