For 81 years, the independent store Victory Meat & Produce Market, a small grocer in New Brunswick, has offered quality products at affordable prices, earning it a loyal customer base despite the increasing dominance of national grocery chains.

“We have long-term relationships with suppliers and local growers, and staff that have been here for 20 years,” said Alex Scholten, co-owner of the Fredericton store. “Our customers are like family and I think those relationships are what has sustained us for so long.”

The mom-and-pop style business has become increasingly rare in Canada’s highly consolidated grocery industry.

Loblaw, Sobeys and Metro make up more than half of all food retail sales in Canada, according to the Who’s Who 2022 report by industry trade magazine Canadian Grocer. Add Walmart and Costco to the tally, and just five companies control three-quarters of grocery sales across the country, the report found.

That market concentration has come under intense scrutiny in recent months as food prices increased at their fastest clip in 40 years. All five companies have faced accusations of profiteering, with executives summoned to testify before a parliamentary hearing in Ottawa where they were grilled by MPs about higher grocery bills. The grocery executives denied the accusations, telling MPs that their margins on food are low.

The federal competition watchdog has separately launched a study into grocery store competition in Canada, questioning whether “competition factors” — in addition to extreme weather, higher input costs, Russia’s invasion of Ukraine and supply chain disruptions — could be affecting the price of food. The Competition Bureau plans to publish its findings in June.

The study comes as Ottawa conducts a long-promised review of Canada’s competition laws, one that strives to “make life more affordable for Canadians,” Innovation Minister François-Philippe Champagne said when the review was launched in November.

Yet when it comes to groceries, just how much consolidation and competition issues influence the price of milk, bread or vegetables is complicated.

While Canada’s grocery sector is highly concentrated, it’s also very competitive, said Michael von Massow, a food economy professor at the University of Guelph in Ontario. “I would argue that consolidation provides economies of scale,” he said. “I know the view that there’s value in size is unpopular … but it probably helps prices. We have a very competitive consumer market for food.”

The current distrust of grocers likely stems in part from Canada’s bread price-fixing scandal, von Massow said. In 2017, George Weston Ltd. and Loblaw Companies Ltd. revealed that both participated in an industry-wide bread price-fixing arrangement for over a decade.

The scandal has given Canadians good reason to be skeptical about the cause of high food prices — especially as grocers post significant profits, von Massow said. “We feel the pinch at the grocery store,” von Massow said. “We’re looking for someone to blame and that’s who’s charging us more.”

But food inflation is due to a number of inflationary pressures that affect the entire supply chain, he said. Indeed, Fredericton’s Victory Meat & Produce Market has seen costs rise more or less on par with the large grocers. Transportation, utilities, food and labour costs have all soared over the last couple of years, Scholten said. The store works hard to keep costs low, but Scholten said prices have still gone up.

Still, Canada’s big grocery chains take advantage of their size and possibly even engage in uncompetitive behaviour, von Massow said. “I think where they’re leveraging that market power is back up the supply chain to suppliers,” he said. “It can make it tough for smaller, independent grocers to compete because they can’t buy as well.”

Michael Graydon, CEO of supplier industry group Food, Health & Consumer Products of Canada, said there are both benefits and drawbacks to concentration in food retail. “There are some benefits. They are very sophisticated retailers with a robust supply chain, so getting products from the manufacturers to distribution to store tends to be fairly efficient.” It’s also easier selling to five companies rather than 25 for some suppliers, he said.

But there are downsides as well, Graydon said. “There is a power imbalance and this is fundamentally why we’re working toward a code of conduct,” he said.

The industry-led Canadian grocery code is expected to be released in the coming weeks. The document is expected to increase “fair and ethical dealing” across the grocery supply chain in Canada, according to a draft version of the code viewed by The Canadian Press. “It establishes some rules for engagement,” Graydon said. “It takes away a lot of that unilateral decision-making and imposing terms on manufacturers without negotiations.”

But the drawback of levelling the playing field between grocers and suppliers could be even higher prices, von Massow said. If you limit the degree to which grocers can put pressure on suppliers, he said it could take money out of the grocers’ pockets. “They’re either going to eat that — and it will have no impact on prices — or they’re going to pass at least some of it on to consumers,” von Massow said.

Source: The Star