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10/16/2022

Loblaw price freeze overdue, but decision may encourage other grocers to follow suit

Following the path of many grocers around the world, Loblaw became the first Canadian grocer to voluntarily freeze food prices. While non-cynical Canadian shoppers will appreciate the grocer’s empathetic gesture, such a move was long overdue
Sylvain Charlebois
Professor, Dalhousie University
Sylvain Charlebois profile picture

For weeks now, many have called for Canadian grocers to voluntarily freeze prices for some main staples at the supermarket as we weather the current food inflation storm. Many Western economies have seen price freezes from grocers, including German giant Lidl and the well-known French multinational Carrefour. The first grocer in the world to do this was more than six months ago. Canada has had no grocer pursuing this strategy; none, that is, until now. As of this week, Loblaw Companies Ltd. became the first Canadian grocer to voluntarily freeze prices for a variety of food products.

In an unprecedented move, the number one grocer has frozen prices for over 1,500 No Name products sold across the country until the end of January 2023. For Canadian shoppers, especially the 25% who are having a hard time coping with food inflation, it was long overdue.

For months now, Canadian grocers – all of them – have been continuously criticised by consumers and politicians for price gouging. It even pushed Ottawa’s standing parliamentary committee on agriculture to launch an investigation into the matter just a few weeks ago. The industry desperately needed to do something for its own reputation. 

Some of the criticism was expected, and likely deserved. Given what happened with the bread price fixing scheme, few consumers have forgiven the industry, even after all this time. To recap: In December 2017, Loblaw and Weston Bakeries admitted to having been part of a bread-price fixing scheme for 14 years. And indeed, Canadians were able to apply for a $25 gift certificate, but not one single person in the industry was fined or went to jail. Things would have played out differently in the United States. Americans don’t mess around with companies trying to undermine the free market.

In our grocers’ defence, though, financial numbers aren’t necessarily telling us that grocers are abusing their oligopolistic powers, even in the current inflationary environment. Many will want to believe it, but the evidence is just not there. Canadian grocers have done well, but gross margins have remained anywhere between 2% to 4%. Loblaw’s numbers are slightly higher than usual this year, but it’s nothing like in other economic sectors.

Take banking for instance. Last year, the Royal Bank of Canada alone made more money in one single quarter than what all Canadian grocers combined made during the entire fiscal year. That list includes Loblaw, Sobeys and Metro. Banks are making a killing while shelter costs are also impacting food affordability. Many Canadians are paying more to have a roof over their heads, mainly due to higher interest rates. Paying more for shelter will compromise food budgets eventually. According to Statistics Canada, 56% of Canadians are currently concerned about whether they can afford housing or rental costs. Also, in a recent survey, more than 7% of Canadians are now using a credit card to pay for groceries without knowing when they will pay their balance back. Interest rates charged by banks add to these outstanding amounts.

While some will appreciate Loblaw’s empathetic gesture, the grocer’s latest campaign will likely bring some cynicism along the way. Some will state that freezing prices for a while is an admission of guilt by Loblaw, but food inflation is a worldwide phenomenon – the entire global agri-food sector has been severely impacted by higher costs. Even if Canada has the third-lowest food inflation rate amongst G7 countries, Canadians could not have been spared. Some will also claim that other products will increase even more, penalising those who don’t want to buy products that are part of the campaign. That is certainly a possibility, but freezing prices for more than 1,500 products for more than three months in food retail is quite the statement. Anyone involved in the industry will appreciate that.

The Consumer Price Index (CPI) for September, the next one, will be released on Oct. 19. Even if Canadian grocers should have done this a while ago, Loblaw did choose the right week to somewhat tame the eventual barrage of profiteering accusations that always come with the CPI report. The report will likely remind Canadians once again that feeding ourselves has gotten more expensive.

In the grand scheme of things, Loblaw’s move was easy to execute. Negotiating with contract manufacturers which support the grocer’s brands is not that challenging. It just needed a plan. The campaign is powerfully symbolic and will show that grocers in our country do have a heart. Let’s hope other companies follow suit.

 

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