Canada sounds call for more grocery retail competition

Competition Bureau study spotlights market share concentration in “big three” supermarket chains.
Canada Big Three supermarket chains-store banners_Shutterstock
Canada's three largest grocers—Loblaw, Sobeys, Metro—generate about $105 billion in annual sales and field nearly 6,000 stores combined. / Photos: Shutterstock

After an in-depth study, Canada’s Competition Bureau determined that market power in the nation’s grocery retail industry is too concentrated and all levels of government must act to promote competition.

The Canadian business and consumer watchdog agency’s “Canada Needs More Grocery Competition” report, released Tuesday, outlined current competition in the grocery sector and highlighted barriers to raising competition. Possible solutions cited in the study included supporting the growth of independent grocers, opening doors to international grocery retailers and encouraging emerging business models to bring more competition, innovation and choice to Canadian shoppers.

In part, the competition study came as grocery retailers in Canada have drawn more public scrutiny amid historically high food price inflation. Many Canadian consumers have cast a skeptical eye at grocers, believing that companies were engaged in “greedflation,” or using elevated inflation as a cover to raise prices. In March, the heads of Canada’s big-three grocers—Galen Weston of Loblaw Cos., Michael Medline of Sobeys Inc. and Eric La Flèche of Metro—were grilled publicly about potential grocery price gouging in a parliamentary committee hearing.

Earlier this month, the trade association Retail Council of Canada released a report concluding that Canada’s grocery retail sector hadn’t practiced greedflation, the same week that the government released a report scrutinizing high food prices. The Canadian House of Commons’ Standing Committee on Agriculture and Agri-Food last fall had voted to undertake an extensive study of elevated inflation in the food supply chain, escalating grocery prices and possible profiteering by large supermarket chains.

Canadian consumers’ concerns about the affordability of groceries, in turn, led Canada’s government to propose a “Grocery Rebate” to give shoppers relief from rising food prices. Under the program, the Grocery Rebate would be delivered via a one-time payment, with a total of $2.5 billion in targeted assistance earmarked for 11 million low- and modest-income Canadians and families.

“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,” Matthew Boswell, Canada’s commissioner of competition, said in a statement Tuesday on the “Grocery Competition” study. “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.”

Canada Needs More Grocery Competition study-Competition Bureau-June2023-grocery giants

Source: Competition Bureau Canada, "Canada Needs More Grocery Competition" report, June 2023.

Canada’s grocery retail scene

Most Canadians buy groceries from five retailers, led by supermarket operators Loblaw Cos., Empire Co. Ltd.’s Sobeys Inc. and Metro Inc. and including mass chains Walmart Canada and Costco Canada, according to the Competition Bureau’s report.

Loblaw stands as Canada’s leading food and drug retailer by far, totaling fiscal 2022 retail sales of $55.49 billion (Canadian). Its network encompasses 2,442 stores across Canada, including such banners as Loblaws, Zehrs, Independent, Valu-Mart, Provigo, Atlantic Superstore, Fortinos T&T Supermarkets, Wholesale Club, Real Canadian Superstore, No Frills, Maxi and Extra Foods, as well as 1,343 Shoppers Drug Mart/Pharmaprix drugstores.

Next is Sobeys, with $30.48 billion in fiscal 2023 sales and more than 1,900 food, drug and convenience stores in all 10 provinces under banners like Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Farm Boy, Longo’s and Lawtons Drugs.

Metro’s retail base covers just Quebec, Ontario and New Brunswick but exceeds 1,600 stores overall and totaled fiscal 2022 sales of $18.89 billion. Its brick-and-mortar network includes 975 food stores under such banners as Metro, Metro Plus, Super C, Food Basics, Adonis, Marché Richelieu and Première Moisson plus 645 drugstores and pharmacies under the Jean Coutu, Brunet, Metro Pharmacy and Food Basics Pharmacy banners.

“The largest grocery chains tower over Canada’s grocery industry. In 2022, Loblaws, Sobeys and Metro together reported more than $100 billion in sales,” the Competition Bureau stated in the study. “Unlike Loblaws and Sobeys, which have stores across the country, Metro operates only in Ontario and Quebec. But all three companies have over 1,000 stores each, including franchised locations. And even if you don’t shop at a store called Loblaws, Sobeys, or Metro, you may be shopping at another store that they own or are affiliated with.”

Walmart and Costco don’t break out their Canadian sales in financial reports. Currently, Walmart Canada operates 402 stores, while Costco has 107 stores in Canada.

“While both companies have different business models and sell more than just food, they compete with Loblaws, Sobey, and Metro for grocery sales,” the “Grocery Competition” report said. “The success of Costco and Walmart across Canada has brought more choice to the grocery industry. But with only about 500 stores between them, they are not an option in every community.”

The Competition Bureau spotlighted a dearth of discount grocery stores in Canada outside banners owned by the nation’s big-three supermarket retailers.

“Loblaws, Sobeys and Metro face less competition from standalone discount grocery chains than we see in some other countries," the report said. "That’s because, in Canada, the large grocers also own many of the biggest discount stores. Loblaws owns No Frills and Maxi, Sobeys owns FreshCo, and Metro owns Food Basics and Super C. This is different from other countries, where large grocers compete against lower-priced options like Aldi or Lidl.”

Independent grocers provide a food shopping option for some Canadians, the Competition Bureau reported. Citing data from the Canadian Federation of Independent Grocers, the study estimated about 6,900 independent grocery stores in Canada, ranging from single-store, family-run operations to independent chains with dozens of stores that compete head-to-head with the “grocery giants.” The latter include Save-On-Foods, which operates more than 175 stores in Western Canada.

However, as in the United States, independent grocers in Canada face various challenges, the competition report noted. Large chains use their scale to command more favorable terms from grocery suppliers, putting independents at a disadvantage in sourcing, pricing and other areas. Many independents, too, end up having to procure product from the wholesale operations of big grocers like Loblaw and Sobeys, making it tougher to compete on price.

The Competition Bureau said independent stores also continue to be acquired by larger chains, and independent operators looking to open new stores often find that many of the best available properties are already controlled by the big-three chains.

“For many Canadians, their main grocery options are supermarkets operated by Canada’s grocery giants: Loblaws, Sobeys, Metro, Costco and Walmart. Some Canadians may have independent options, depending on where they live, but many of these options are limited in their product selection, store locations and other important competitive aspects,” the Competition Bureau observed. “Independents play an important role in communities across Canada, but without government support, we should not expect them to significantly expand in the near future.”

Canada Needs More Grocery Competition study-Competition Bureau-June2023-stores

Source: Competition Bureau Canada, "Canada Needs More Grocery Competition" report, June 2023.

Not all consumers able to shop around

Canada’s Competition Bureau also sized up the grocery retail competitive landscape in a poll of 1,000 Canadians through the Privy Council Office (PCO) Survey on Current Issues. Eighty-one percent of respondents said they buy groceries once a week (44%) or two to three times weekly (37%).

Availability of grocery stores varied. Forty percent of consumers reported having three to five stores within 15 minutes of their home, compared with 24% having only one to two stores within that distance and 22% having six to 10 stores in that proximity. Five percent said they had no grocery stores 15 minutes or less away from their home. In terms of transportation, 83% get to the grocery store by car, 10% on foot and 5% via public transit.

“Consumers tend to stay close to home when thinking about grocery options,” the report said. “This makes a lot of sense, as the extra time, effort and expense of traveling farther will tend to offset any cash savings they get.”

Nearly half of shoppers polled (49%) said they typically go to Loblaw Cos. stores to buy groceries, followed by Sobeys Inc. stores (28%), Walmart (25%), Metro Inc. stores (22%) and Costco (18%). Twenty-eight percent go to other retailers for their groceries.

Canadian consumers indicated they comparison-shop on pricing. Sixty-two percent of those surveyed said they sometimes (41%) or often (21%) visit multiple grocery stores to find the best price, while 17% do this very often. Still, 21% reported they never go to multiple stores to get the best pricing.

“When looking at the availability of grocery products, we often see very different results when comparing cities to smaller towns or rural communities,” the Competition Bureau noted. “In a city, residents might easily have five or more grocery stores within 20 minutes of their house. Those who live in a small town or a rural community said that they have much fewer options.”

Loyalty programs play a big part in grocery store choice. Sixty-two percent of shoppers said they’re much more likely (34%) or somewhat more likely (28%) to buy groceries at stores where they can use the retailer’s loyalty card, versus 38% for whom a loyalty program makes no difference. Three-quarters of those polled said they have a grocery store loyalty/rewards card.

“Loyalty programs can bring about lower prices for consumers—either through special offers or by redeeming points for cheaper groceries,” according to the study. “They may also drive grocery stores to compete harder to lure customers away from another store that has a particularly strong loyalty program.”

Canada Needs More Grocery Competition study-Competition Bureau-June2023-consumers

Source: Competition Bureau Canada, "Canada Needs More Grocery Competition" report, June 2023.

Ways to spur competition

To foster grocery competition across Canada, the Competition Bureau made four recommendations—to be advanced “in the most pro-competitive way possible”—for national and provincial government.

1. Develop a “Grocery Innovation Strategy.”

According to the study, this strategy would support new kinds of grocery businesses and expansion of consumer choice. The bureau pointed out that it’s tough for new grocers to set up shop and grow while competing with “Canada’s grocery giants,” and market forces alone won’t remedy the situation anytime soon.

“Governments in Canada at the federal, provincial and territorial levels should consider working together to develop a ‘Grocery Innovation Strategy’ aimed at supporting the emergence of new types of grocery businesses, whether online businesses or other industry disruptors,” the Competition Bureau stated. “This could include financial support to incentivize competition and innovation in the industry—including, for example, support for entrepreneurs that want to launch online grocery businesses as well as measures to simplify or modernize regulatory requirements that can make it difficult for new types of grocery businesses to operate.”

Online grocery services could be a competition driver, the study said. That includes third-party and retailer provided home delivery, curbside pickup and meal delivery services, as well as online-only grocers and “dark store” operations.

“About a third of Canadians said that they have used at least one online option to buy groceries in the past three months,” the bureau said. “This could represent a change in how some Canadians buy their groceries.”

2. Support the growth of independent grocers and entry of international competitors.

Assistance to independent food retailers could include grants and incentive programs to help them get started, operate competitively and expand. “The growth of Canadian independent grocers into stronger regional and potentially national players would meaningfully increase competition in the industry,” the report said.

Canadian governments also should “do all that they can” to lure international grocers, including the relaxation of any barriers to entry. The study, in particular, cited the examples of Aldi and Lidl, whose launch and expansion in various countries brought more competition that pulled down grocery prices and expanded consumer choice.

3. Introduce “accessible and harmonized” unit pricing requirements.

The development and implementation of unit pricing benchmarks nationwide would better enable Canadian consumers to compare similar products in different package sizes. “Right now, consumers have to compare many different products and package sizes to choose what is best for them,” the bureau said. “This is a daunting challenge to even the most informed consumer and out of reach for too many.”

4. Limit property controls in the grocery industry.

This includes restrictions when a grocer signs a lease and when a store is sold, as some provisions can reduce consumer choice, hamper business startups and operations, and squelch competition.

“Canada needs more grocery competition. When businesses compete, all Canadians benefit from lower prices, greater choice, and increased levels of innovation,” the Competition Bureau concluded in the report. “Competition can be a key part of the solution to help keep grocery prices in check.”

Price competition already “fierce”

Commenting on the Competition Bureau’s report, the Retail Council of Canada (RCC) said it was “pleased” that the study didn’t find grocery retailer profits to be excessive or that margins were padded amid high inflation.

“Indeed, the bureau found grocer profit levels to be ‘modest.’ The greedflation smear is officially dead,” RCC stated on Tuesday.

The grocery industry has “always welcomed competition,” the Canadian retail trade group said.

“There are no barriers that grocers themselves impose to new entrants wishing to get into the market. The report indicates that foreign grocers may be holding off because they see how aggressively Canadian grocers compete on price and because Canada already has a well-established discount grocer market share,” RCC explained. “There is no better validation of this fact than the report’s own account that when foreign grocers were asked if they would come to Canada, their answer was that it would be difficult to compete on price.”

RCC noted that the Competition Bureau report focuses on grocers’ overall sales rather than specifically on food. The organization also said food margins remain stable, Canada’s food inflation is the world’s second-lowest, and Canadian grocers create hundreds of thousands of jobs and “invest significantly” in the economy.

Gross margins in grocery edged up 1% to 2% since 2017, to a profitability level in the 2% to 5% range—“the lowest of any other consumer-facing industry or any other part of the food supply chain,” RCC reported, adding that most increases have been driven by pharmacy, health and beauty, along with operating efficiencies.

“Food margins are either flat or down. The fact remains that grocery prices have gone up because of a confluence of global factors affecting grocery inputs: war, extreme weather and soaring fuel prices, all piling on top of supply chain disruptions and labour shortages,” RCC stated. “And so, the conclusion that we draw from the [Competition Bureau] report is something of a paradox: More competition could result in lower prices, but foreign grocers aren’t raising their hands to enter our market because Canadian grocers already compete fiercely on price.”

*Editor's Note: Article updated with comment from Retail Council of Canada.



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