Walmart and Costco in Canada not making food inflation worse, experts say

TORONTO -

Experts say the Canadian presence of American retail giants such as Walmart and Costco isn't likely to blame for rising grocery prices.

That's despite Canadian grocery chain executives having pushed for MPs to question those retailers as part of their study on food inflation.

University of Toronto economist Ambarish Chandra called ongoing hearings before a parliamentary committee studying the issue, "performative," saying all retailers seek to maximize profits despite their stated efforts to minimize price hikes.

"It's easy to call on the foreign companies and make them explain why they're fleecing hardworking Canadians," said Chandra.

"It's not as though American grocers are taking advantage of Canadians and Canadian grocers aren't. The grocers are going to charge what they can get away with, what the market will bear."

His remarks come as Canadian grocers and consumersare under pressure as food prices continue to skyrocket despite overall inflation easing in recent months.

Grocery prices were up 10.6 per cent in February compared with a year ago, while overall inflation was 5.2 per cent. The grocery inflation rate was down from an 11.4 per cent year-over-year increase in January.

   Walmart Canada president and chief executive Gonzalo Gebara told the parliamentary committee Monday that his company is not trying to profit from food inflation.Instead, he insisted it is striving to maintain a price gap between its products and those sold by its competitors.

Walmart Canada's gross profit rate for its food business and its total operating profit in dollars declined last year, he added.

Gebara's testimony followed a highly-anticipated, March 8 committee meeting in which the heads of Metro Inc. and Empire Co., two of Canada's three biggest grocery chains, questioned why MPs had not called on American retail giants to answer questions for their research into food inflation.

The committee then unanimously agreed to invite the leaders of Walmart and Costco's Canadian arms to speak.

Pierre Riel, Costco's senior vice-president and country manager for Canada, is scheduled to appear before the committee on April 17. A Costco spokesperson did not respond to a request for comment on Riel's upcoming appearance.

Canadian grocers including Loblaw chairman and president Galen Weston told the committee earlier this month that food inflation is not being caused by profit-mongering, insisting their margins on food have remained low.

But Chandra said that framing is merely "window dressing."

"We've seen, frankly, bad behaviour from these grocers over the years, whether it's price fixing or other sorts of scandalous issues, like co-ordinating on reducing pay for cashiers during the pandemic -- all of these things stemmed from the fact that we just don't have enough competition," he said.

"We should look into encouraging competition, and one way to do that is to actually have more foreign grocers in the country. So, the presence of Walmart is actually good for Canada in the long run, not bad for it."

Simon Somogyi, an agribusiness researcher at the University of Guelph, added that Walmart and Costco are larger companies than Canadian grocers, which gives them the ability to source products in greater volumes, ultimately allowing them to sell at lower prices.

"Their inclusion in our retail landscape is important and allows consumers to have a choice of where they want to put their money," he said."Typically, their motto is 'come to us because we sell in bulk, at a typically lower price than our competitors."'

He said "any competition that can come into the marketplace is welcomed" in order to help keep costs down.

Factors such as high costs for delivery, packing and labour, along with historically high commodity prices, are still contributing to rising grocery bills, but experts have said they expect food price increases to normalize by the end of 2023.

If the ongoing committee hearings yielded increased transparency surrounding the mechanisms that lead to increased costs for suppliers, Somogyi said it would benefit the public.

"The hearings that we've been seeing are really about, from a consumer perspective, why are prices going up? I'd sort of hoped in some ways for far more discussion on how supplier prices are set," he said.

"The two are linked, but a lot of the theatrics that we've seen in this hearing haven't really got to the bottom of that."

 

This report by The Canadian Press was first published March 29, 2023.