Grocers are facing government crackdowns, but will it lead to change?

In March 2023, executives from Canada’s three largest grocery companies paid a visit to Parliament Hill.

Michael Medline, Galen Weston and Eric La Flèche had been summoned before a House of Commons committee to answer questions about their companies’ rising profits. Facing MPs, they denied accusations of raising prices beyond what inflation warranted.

“It doesn’t matter how many times you say it, write it or tweet it. It simply is not true,” said Medline, the president and CEO of Sobeys parent company Empire.

Canadian politicians have been trying to tackle grocery prices, which have risen significantly in just a few years amid overall inflation and higher interest rates.

But experts say politicians are oversimplifying a complicated issue in an effort to look like they’re meaningfully addressing food inflation, when in reality they have limited tools at their disposal to influence retail prices.

“There is a little bit of political theatre going on here,” said Michael von Massow, a food economy professor at the University of Guelph.

Food inflation in Canada has cooled from its heights, but grocery prices have still risen by more than 22 per cent in four years, according to Statistics Canada, and Canadians are looking for where to point the finger.

A survey by Leger earlier this year found almost 30 per cent of Canadians believe food inflation has been primarily caused by grocery stores trying to increase profit margins. Another 26 per cent think it’s mostly due to global economic factors, while one in five blame the government.

Von Massow and Monica LaBarge, an assistant professor at Queen’s University studying food access and consumer well-being, both said grocery prices are a sensitive topic for consumers, as they’re a frequent and necessary expense that can’t be avoided.

Public pressure has risen on the government to act, said LaBarge, and that’s translating into political pressure on the entities many blame for food inflation.

Besides hauling grocery executives in front of MPs, the government has called on grocers to make plans to stabilize prices; strengthened the competition watchdog’s powers to investigate companies; and established a task force it says will monitor the grocers’ work on price stabilization.

Recent heightened scrutiny of grocers extends beyond Canadian borders. Other countries, such as Australia, France, and the U.S., have also been singling out retailers in efforts to address grocery prices.

In the U.S., President Joe Biden has been under pressure from consumers and lawmakers to address food prices.

The topic of “shrinkflation” — when companies reduce the size of a product but don’t reduce the price accordingly — even came up in his March 8 State of the Union speech.

In March, the U.S. Federal Trade Commission issued a report saying some grocery retailers appeared to have used COVID-19 supply chain issues as an opportunity to hike prices. The FTC has also sued to block a proposed merger between the Kroger and Albertsons supermarket chains, saying it would harm competition and further raise grocery prices.

In Australia, similar pressure has been bubbling up. The government has directed its competition commission to conduct an inquiry into the country’s supermarkets’ pricing practices and the relationship between prices on the shelf and prices along the supply chain.

Australia has a voluntary grocery code of conduct, though it’s likely to soon become mandatory. Talk of Canada’s own forthcoming voluntary code has recently been intertwined with talk of food inflation, but the code is intended to make industry negotiations fairer, not lower prices.

Consumers are seeking the causes of food inflation, von Massow said, and there are many of them. But politicians are looking for easy answers.

“The truth is, there is no silver bullet here,” he said.

For the NDP, the focus has largely been on corporate profits, said von Massow, noting the party has advocated for a price cap on grocery store staples. It was NDP leader Jagmeet Singh who bore down on Loblaw’s Galen Weston at the meeting in March last year, repeating, “How much profit is too much profit?”

For the Conservatives, the carbon tax is a major talking point when it comes to food prices, said von Massow, while for the Liberals, there’s a focus on competition — industry minister Francois-Philippe Champagne has said he’s seeking a foreign grocer to enter the Canadian market.

The Competition Bureau last year released a report saying the grocery sector needs more competition to help “bring grocery prices in check.” And with its new powers granted by the Affordable Housing and Groceries Act, the bureau has launched an investigation into grocers’ use of allegedly anti-competitive real estate clauses.

Both von Massow and LaBarge said that despite the focus on competition in Canada and abroad, there are also potential price benefits to consolidation.

“From a purely academic perspective, having a larger organization that has more buying power in the market and so has better ability to negotiate with suppliers should provide lower prices to consumers,” said LaBarge.

Von Massow said he doesn’t think there is strong evidence that grocers contributed significantly to inflation through pricing. However, he thinks the risk of profiteering is actually greater as prices stabilize or even go down: “It’s much easier to lower prices more slowly than it is to raise prices more quickly.”

Without intervening through tools like subsidies, the government can’t do too much about food prices, said von Massow.

In fact, the focus on what specific companies may or may not be doing could be obscuring the more complex reality, he said: that global factors are the biggest contributors to food inflation, like extreme weather from climate change, the Russia-Ukraine conflict, and currency exchange rates.

We need to better mitigate these risks through moves like supply chain diversification, von Massow said.

“It’s easy to focus on domestic markets. It’s easy to look for domestic boogeymen … but I think we’re ignoring the global food system and the integration of the global food system, and the resilience that provides.”

— With files from The Associated Press

This report by The Canadian Press was first published July 28, 2024.

Companies in this story: (TSX:L, TSX:EMP.A, TSX:MRU)

Rosa Saba, The Canadian Press