The Competition Bureau of Canada (the "Bureau") is an independent federal law enforcement agency which aims to protect and promote competition for the benefit of Canadian consumers and businesses. The driving principle is that competition drives lower prices and innovation while also fueling economic growth.
The Bureau is now casting a harsh light upon an industry which is integral to daily life: the grocery sector. In its recent market study report titled "Canada Needs More Grocery Competition," the Bureau calls for increased competition.1 This report arrives on the heels of constantly soaring grocery prices — the highest in over forty years. The Bureau's recommendations therein may be viewed as an essential step in fostering a more robust and fair grocery marketplace.
In brief, Canada's grocery industry is dominated by three giants: Loblaws, Sobeys, and Metro. This domination makes it more challenging for new entrants or independent stores to compete on that scale. To address rising grocery prices and increase competition, the Bureau suggests that the Canadian government should create a "Grocery Innovation Strategy," support independent and international grocers, introduce harmonized unit pricing, and limit property controls that hinder new grocery stores from opening.
These measures aim to ensure more choice and affordability for Canadian consumers, although changes may take time.
Dominance and Market Power in the Grocery Sector
One of the primary concerns within the context of Competition Law is the accumulation and exercise of market power. In the grocery industry, dominant players may exert substantial control, influencing prices and choices available to consumers.
Market dominance, as outlined in Section 79 of the Competition Act, revolves around entities having substantial or complete control of a class or species of business.2 With control, there is a possibility of exerting that control to engage in anti-competitive behaviour and independently influence market dynamics.
For example, Canada Bread, a major producer of baked goods, recently agreed to pay a $50 million fine after admitting to collusion in fixing the price of bread in Canada.3 The company confessed that it had collaborated with competitors to raise wholesale bread prices, which affected consumer prices. The collusion involved discussions and agreements on price hikes between executives at Canada Bread and Weston Foods (Canada) Inc. This price-fixing scandal first came to light in 2015 when the Bureau commenced an investigation. The $50 million fine is the highest price-fixing fine ever imposed by a Canadian court.
Opportunities for Reform
The Bureau has put forward four key recommendations aimed at catalyzing competition in the grocery industry:
- Whole-of-government strategy: Creating a comprehensive government strategy to facilitate the emergence of new types of grocery businesses is crucial. This approach can ensure that there are fewer barriers to entry and the competitive landscape becomes more diverse.
- Encouraging independent and international players: Encouraging the growth of independent grocers and facilitating the entry of international players can break the stronghold of the few dominant entities. This could lead to more competitive pricing strategies and innovation in the sector.
- Harmonized unit pricing requirements: Introducing accessible and harmonized unit pricing requirements can empower consumers to make informed choices. This transparency could drive competitive pricing as consumers can easily compare the value of products across different retailers.
- Limiting property controls: Property controls can restrict new entrants by making it difficult for new grocery stores to open. Limiting these controls would lower barriers to entry and stimulate competition.
These recommendations come while the federal government works to develop a code of conduct for grocers. In January of this year, Agriculture and Agri-Food Canada released a statement stating that this code would strengthen Canada's food supply chain by promoting transparency, fairness, and predictability.4 The statement acknowledges that the Code won't solve all challenges in the food supply chain, but asserts that its adoption will bolster the supply chain's resilience and earn consumer trust.
Embracing Competition
Rising consumer prices are connected to the lack of competition in the marketplace. The Bureau's recommendations come at a time when Canadians are grappling with cost-of-living increases which are increasingly out of control. Implementing the Bureau's recommendations can ensure a fair playing field in the grocery industry, which in turn can result in lower prices, increase choice, and provide better service.
These recommendations may ultimately lead to a more vigilant approach against any other anti-competitive practices, including abuse of dominance or anti-competitive agreements among existing players.
The Bureau commits to rigorously scrutinizing the industry, supporting the implementation of a grocery code of conduct, and revisiting the matter in three years.
The Bureau is taking a sharp aim at identifying and breaking down the barriers to competition in Canada. These recommendations are a step in the right direction towards a more competitive and consumer-friendly grocery industry in Canada.
Footnotes
1. See: Competition Bureau Canada, Canada Needs More Grocery Competition: Competition Bureau Retail Grocery Market Study Report (Gatineau, Quebec: Competition Bureau, 27 June 2023); see also: Competition Bureau Canada, Competition Bureau makes recommendations to promote competition in Canada's grocery industry (Gatineau, Quebec: Competition Bureau, 27 June 2023).
2. Competition Act, RSC, 1985, c C-34, s 79.
3. Pete Evans, "Canada Bread agrees to $50M fine for role in bread price-fixing scandal," CBC News (21 June 2023).
4. See: Agriculture and Agri-Food Canada, Joint Statement on the development of Canada's first-ever Grocery Code of Conduct (Ottawa, Ontario: Agriculture and Agri-Food Canada, 13 January 2023).
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