The federal government has invited a number of foreign grocery retail chains to set up in Canada to compete with the few grocery chains dominating the market.
The invitation was made to stimulate competition and keep grocery prices from skyrocketing as they have since Covid-19.
This invitation displays a complete lack of understanding on how the market system operates.
In the market system high prices usually create opportunities for competitors to enter, reducing overly generous profits through competition.
In Canada, competition by grocers is not that noticeable. Five retail chains have 80 per cent of the market. The largest, Loblaws, has 29 per cent of the market.
Challenging these chains with the hundreds of millions invested in warehouses and transport networks across Canada would be a daunting task.
In the low profit margin grocery business foreigners would get better returns by investing in a less challenging market.
The great mistake by previous governments of both parties was allowing the concentration of the market in the first place with one take-over after another.
Now Canadians are stuck with these players.
Canadians saw how U.S.-based Target came into Canada in a large splash and left with the tail between their legs.
Target played in a market dominated by Walmart and Canadian Tire.
Grocers claim huge profits are being made from inflation, not from price gouging.
A study by the Broadbent Institute indicates that grocery profits between 2010 and 2023 ranged from 1.75 per cent of sales to 2.75 per cent.
At that rate $100 million sales would have netted between $1.75 million and $2.75 million – a razor thin margin considering the investment.
Between 2022 and 2023 profits ranged from 2.5 per cent to a high of 3.75 per cent.
During the same period average wages at grocery stores went from $19.50 an hour t o $21.50 when “hero pay’’ was awarded, then fell to $19.61.
It can be argued that some of the extra profit is coming from reduced wages to grocery employees.
The Broadbent Institute study suggests three options to curb rising food prices — windfall profits tax, price controls and/or stronger support for unionized employees.
The rate of union employees has declined by one-third since 2002.
High wages would be reflected in prices.
A windfall tax would reduce earnings for shareholders and cut the cash available for improvements and innovation.
Windfall taxes likely would not impact grocery prices. The big chains would hire an army of accountants and lawyers to avoid the taxes and possibly even make stupid investments to avoid taxes.
Price controls would be a nightmare.
Imagine the thousands of government employees needed to administer price controls and the legions of employees grocers would need to comply.
The grocery market has shifted. Discounters like Walmart and Costco are gaining market share. “Dollar’’ stores are capturing a larger portion of the grocery dollar.
Loblaws and Safeway/Sobeys are building out store brands with discounts.
The shift may not be noticeable as prices remain high. But switches of this nature take years to complete.
Ron Walter can be reached at [email protected]
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
