A man shops at a Loblaws store in Toronto on May 3, 2018. Loblaw Companies Limited held their annual general meeting.Nathan Denette/The Canadian Press
Per Bank is chief executive of Loblaw Cos. Ltd.
Canadians have faced serious affordability challenges in recent years. The cost of housing, energy, gasoline and groceries have all increased significantly, leaving many struggling to make ends meet.
As a leader in the Canadian grocery sector, and in the face of such challenges, I understand these concerns and know that our job is to support Canadians by providing great products and delivering real value, something we are focused on every day.
Unfortunately, too many have assigned blame to the grocery sector for higher food prices. They often diagnose the problem as the product of excess profit-taking.
That could not be farther from the truth. A false narrative has been propagated that grocers have taken advantage of higher inflation and make excess profits. The reality is that the grocery sector in which Loblaw operates continues to have the thinnest of margins and be the least profitable among all major economic sectors in Canada.
Instead of such a baseless assertion, we should focus our attention on actual solutions. One is to end all commercial property controls on how and where competitors can compete with one another. This is a meaningful solution that will have a tangible impact, especially in the current industry environment.
Grocery profit margins have remained stable from prepandemic levels, averaging around 3 to 4 per cent, with the remaining 96 per cent going to food manufacturers, growers, wages, store operations and taxes. This contrasts with an average profit margin double that for companies listed on the TSX60 at more than 10 per cent, and approximately 15 per cent for top global food manufacturers operating in Canada.
Further, high food prices are a global phenomenon not driven by grocer profits but driven instead by suppliers suffering from supply chain disruptions, geopolitical turmoil, climate change, increased ingredient and commodity costs, and a host of other factors.
Canadians spend less of their disposable income on food than those in most other developed countries; however, that does not ease the affordability challenge and pressures for millions of people.
Another false assertion by critics is that there is too little competition in the grocery sector.
The best way to meet the needs of Canadians, in my view, is through healthy competition. Competition is the lifeblood of a vibrant marketplace. It fosters innovation, drives efficiency and, above all, gives consumers greater choice and power.
I have spent most of my career as a grocery CEO in various markets around the world. From my perspective, Canada has one of the most hotly contested and competitive grocery markets internationally.
In this country, Loblaw is competing not only against domestic players and local grocers; we are in active competition with global giants. Walmart and Costco, two of the largest retailers in the world, command approximately a third of national grocery market volumes based on Nielsen data. This is the highest level of foreign participation in the grocery sector of any country in the G7. Vibrant independent and alternative grocery channels also intensify the competitive landscape.
While we think we have one of the most competitive grocery markets in the world, we are open to the challenge of making sure that it stays that way. Strong competition makes us all better.
That is why the Canadian grocery industry should end the use of all commercial property controls.
In multiple sectors across Canada – including banking, telecom, fast food and grocery – landlords often grant exclusive rights in leases that do not allow a competitor of a tenant to operate in the same building or property. These exclusivity clauses have been commonplace for decades and are designed to incentivize companies to invest in new stores. Similarly, when a property is sold by a retailer, restrictive covenants are sometimes left in place to stop a new owner from using that location to operate a competing business.
Recent legislative changes to the Competition Act may restrict the use of property controls, and the Competition Bureau has issued draft guidelines that indicate property controls should only be used in certain circumstances.
These are positive changes. We envision a competitive environment in which all new and existing property controls are eliminated. To get to that place would require a level playing field with industry-wide rejection of property controls. We are ready to remove such property controls if others do so.
Undeniably, Canadians have faced mounting pressures in recent years – inflation in all sectors of the economy, increased living costs owing to supply chain-related disruption and so much more. In response to these challenges, our pledge and actions are simple; we continue to prioritize value in everything we do.
Together, let’s pave the way for an even more dynamic retail environment that ultimately benefits Canadian consumers in the true spirit of fair competition.
