Response from The Empire Company Limited and its subsidiary Sobeys Inc. to the consultation on the Market study of retail grocery

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Re: Competition Bureau Market Study – Competition in Canada’s Grocery Sector – Empire Company Limited Submission

March 17, 2023

By E-mail

Greg Lang
Major Case Director and Strategic Policy Advisor
Competition Promotion Branch
Competition Bureau Canada
50 Victoria Street
Gatineau, QC K1A 0C9

Dear Mr. Lang,

Empire Company Limited (“Empire”), and its subsidiary Sobeys Inc. (“Sobeys”), are providing this updated submission in response to the Competition Bureau’s market study to promote competition in Canada’s retail grocery sector and in connection with the ongoing food price inflation study of the Standing Committee on Agriculture and Agri-Food (the “AGRI Committee”). We also wanted to provide additional information in response to the discussion topics and follow-up questions you sent to us earlier this year, as well as to provide you with the most up to date financial information given Empire’s recent release of its financial results for the third quarter of fiscal 2023. Further, in direct response to the discussion topics at the AGRI Committee, we wanted to provide you with financial information for our food segment only.

There is no doubt that costs – including food costs – are on the rise in Canada and around the world. Canadian inflation is at its highest level in 40 years, which imposes cost pressure across the economy. In this inflationary environment, pundits and policymakers are tempted to point fingers and complain loudly of “greedflation” or “collusion” or “market power”, which attracts media headlines and public attention much more readily than the true issues that drive inefficiency and rising prices: fiscal policy, supply chain issues, labour shortages and supply management. These issues are driven by the macroeconomic environment and are affecting retailers globally.

Canada is a large country with a sparse population. The requirements of the retail grocery industry (just-in-time delivery, a fragmented supplier base, complex logistics, an extensive retail footprint, etc.) present immense operational challenges. Despite these challenges, grocery competition in Canada – including both bricks-and-mortar traditional grocery competition and innovative delivery business models – has thrived and continues to thrive. Canada has four national grocery chains (Loblaw, Sobeys, Walmart and Costco), a significant number of regional chains (including Metro, which serves 60% of the Canadian population through its operations in Ontario and Quebec) and over a thousand independent grocery stores that compete vigorously. Even more importantly, Canada has been a hotbed for innovation as grocers optimized their supply chains to avoid shortages during the Covid-19 pandemic and catered to Canadians’ need for grocery delivery with a variety of business models. Indeed, Canadians enjoy more grocery competition than in many other developed countries.

The Bureau has repeatedly examined the state of competition in the retail grocery industry, and competition has always been robust. The Bureau has cleared multibillion dollar acquisitions (Loblaw’s acquisition of Shoppers and Sobeys’ acquisition of Canada Safeway), with sales of individual stores to ensure sufficient competition in every local area. The Bureau separately investigated Loblaw’s behaviour for signs of “abuse of dominance” for over four years, and concluded that no intervention was merited. The Bureau cleared Sobeys’ acquisitions of Farm Boy and a majority interest in Longo’s very quickly, which makes sense in light of the significant local competition. Clearly, the Bureau has never identified any structural deficit of competition in the Canadian grocery sector. No such deficit exists.

The Bureau should resist the temptation to feed into lazy policymaking and public indignation. Rising food prices are not the result of insufficient grocery competition, or greedflation, or collusion. In fact, Sobeys has actively helped to dampen the impact of inflation on Canadians by working hard with its suppliers to reduce cost increases and to mitigate the impact of cost increase on retail prices.

The Bureau can be a valuable advocate in helping policymakers understand what really is (and what is not) causing increased pricing, and the policy steps that can better address the drivers of inflation. In fact, many of the policies that can help improve the agility of the Canadian food sector and provide better value to customers are not related to competition. These policies include measures that reduce congestion at ports, help to alleviate labour shortages, increase the adoption of automation, ensure sound fiscal policy and optimize redistribution efforts to target aid at the hardest-hit populations, among others. Further, the establishment of a Grocery Code of Conduct, which is currently being developed by Empire and other grocers and suppliers, will help address the needs of all stakeholders across the value chain. The Bureau should provide its input on and support the development of this code of conduct. By contrast, policies that hinder the free-market operation of the grocery sector (e.g., supply management) will worsen inflation, compromise innovation and amplify the problems that are putting upward pressure on Canadian food prices.

I. Introduction

Sobeys operates the food retailing segment of Empire, a publicly traded company with shareholders, including individuals, pension funds and institutional investors who invest on behalf of millions of Canadians. Proudly Canadian, with headquarters in Stellarton, Nova Scotia, Sobeys has been serving the food shopping needs of Canadians since 1907. The company owns or franchises more than 1,600 stores in all ten provinces, employs approximately 130,000 people and operates grocery stores under a number of banners, including Sobeys, IGA, Safeway, Longo’s, Farm Boy, Foodland and FreshCo.^{Footnote 1} Sobeys is actively involved in the communities where it operates, contributing millions of dollars to hundreds of community organizations and funding to Canadian charities.

In responding to the market study, our submission will make three key points:

• The retail grocery sector in Canada is intensively competitive. As the Bureau has observed in several recent merger reviews, the retail grocery sector is characterized by a high degree of structural competition across Canada, including both the number of competitors and the wide (and expanding) variety of viable delivery and pricing models.
• Rising Canadian grocery prices reflect prevailing macroeconomic conditions, not a lack of retail competition. Prices are rising not only at Canadian grocery stores, but across the Canadian economy and around the world. With Canadian inflation at its highest rate in four decades, Sobeys is fighting hard to resist cost increases, not celebrating the opportunity to increase prices for Canadian shoppers.
• There is room for improvement in retail grocery, but policymakers must proceed with caution. Most of the key recommendations of prior studies of grocery competition in other jurisdictions are already reflected in the Canadian grocery sector. There are opportunities to help safeguard and improve the competitiveness of the Canadian retail grocery sector, but policy recommendations must focus on the underlying drivers of higher prices – logistics challenges and labour shortages, for example – and not proceed from baseless assumptions to outcomes that would have a chilling effect on competition.

Each of these points is discussed in detail below.

II. The Canadian Retail Grocery Industry is Intensely Competitive

Canada is a large, sparsely populated country, which makes the logistics of the retail grocery business both complex and costly. A retail grocer must ensure just-in-time delivery of fresh products; transport bulky, heavy and fragile food products that require various levels of freezing and refrigeration; ensure the robustness of supply chains despite variable and challenging weather conditions (heatwaves, ice storms and everything in between); and service a wide network of retail endpoints that vary in size, profitability and local community preferences.

Despite these challenges, the Canadian retail grocery industry is extremely competitive. There are four national grocery networks that compete vigorously across all ten provinces. More importantly, there are more than two dozen regional chains that collectively compete across all parts of the country. In addition, there are more than 1,300 independent grocery stores that compete in local communities. Available grocery formats range from traditional grocery stores to warehouse stores, general merchandisers with fresh food and discount stores. Competition is further enhanced by innovative delivery firms, which are discussed further below.

It is critical that, in carrying out its market study, the Bureau takes into account the significant number and variety of grocery stores in Canada and pushes back on stakeholders who advance unsubstantiated claims about a generic lack of competition (or that a company’s revenues or EBITDA or gross margin is somehow, on its own, evidence about the state of competition).

The Bureau’s enforcement history in the retail grocery sector is consistent with its intense competitiveness. The Bureau reviewed Sobeys’ acquisition of Canada Safeway in 2013 and required only a small number of targeted divestitures in local communities to address local competitive dynamics. In more recent grocery merger reviews (e.g., Sobeys’ acquisition of Farm Boy in 2018 and its acquisition of a majority interest in Longo’s in 2021), the Bureau reviewed the competitive effects of the transaction quickly and – correctly – did not see fit to challenge the transactions as anticompetitive or to condition its clearance on any local divestitures. These decisions reflect the structural characteristics of the retail grocery market, including the significant competitive discipline imposed on Sobeys by the presence of other traditional grocers, warehouse and general merchandise stores and discount stores. The outcomes of these merger reviews are consistent with the intensifying competitiveness of the retail grocery sector in Canada. This intense competition, which the Bureau has correctly recognized in its enforcement history, help to support the conclusion that competition in Canada is robust, and market power among local grocers is not the cause of food price inflation.

It is also important to note that retail grocery is highly dynamic, which makes the sector even more competitive than the number of local grocery stores in a particular area would suggest. In particular, in recent years new grocery delivery models have expanded the retail grocery market and introduced dozens of new competitors. These competitors leverage innovative business models to reduce logistics costs and satisfy changing customer demands. The following table describes these delivery models.

Explanation of grocery delivery models

Delivery Model	Description
In-House Delivery	Groceries are ordered online through a retailer's website and delivered to the consumer's residence by the retailer's delivery infrastructure. In addition, meal kit services – which themselves are competitive alternatives to retail groceries – have increasingly begun offering à la carte grocery delivery options alongside their meal kit offerings, leveraging their in-house procurement teams and delivery services.
Third-Party Delivery	Groceries are ordered online either through a retailer's website or a third-party platform and are “picked” and delivered by a third-party delivery service. Many third-party delivery services (including Instacart, Cornershop and Buggy) offer access to a large number of grocery retailers from their own sites and mobile apps, facilitating consumer choice and retailer competition. Some services that offer restaurant delivery (including Skip the Dishes, DoorDash and UberEats) also offer grocery delivery in some locations.
Click and Collect	Groceries are ordered online through a retailer's website for pickup by the consumer, either at the retailer's bricks-and-mortar store or at another designated location.

Sobeys launched its online grocery delivery service, Voilà by Sobeys, in the greater Toronto area in June 2020 in order to provide customers with convenient new shopping options and to ensure Sobeys remains well-positioned to respond to actual and potential competition from other food and grocery delivery platforms, including Amazon / Whole Foods, PC Express, myMetro, Walmart Grocery Delivery and others. Voilà launched in Quebec, as Voilà par IGA, and began delivery in the Ottawa region in early 2022. In Western Canada, Sobeys is currently constructing a central fulfilment centre outside of Calgary to bring Voilà home delivery to customers in Alberta and expects to launch in 2023. Sobeys also has plans to construct a central fulfilment centre in the greater Vancouver area to bring Voilà to British Columbia in 2025. Through Voilà, Sobeys also offers curbside pickup at 98 stores across the country.

Appendix “A” provides a list of even more grocery delivery services that are present in large and mid-sized Canadian cities. Sobeys has seen the online grocery segment grow substantially in Canada in recent years, with every major Canadian bricks-and-mortar grocer, wholesalers (including Sysco), numerous smaller grocers and many dedicated online-only suppliers now competing in this channel. The availability of these online options and the rapid pace of expansion reflects the incredible competitiveness of the grocery sector in Canada. E-commerce continues to compete vigorously with traditional bricks-and-mortar models. Before the covid-19 pandemic, e-commerce represented approximately 1% of Canada’s grocery sales; during the pandemic it peaked at 5% of grocery sales and today it represents 3% of grocery sales but is expected to continue to grow and gain market share from traditional channels.

At the same time, the emergence of discount, urban, premium and other store formats has also contributed to retail grocery competition, as each store format competes with all others while also providing consumers with a greater degree of optionality. Walmart expanded into grocery sales in Canada with the construction of Walmart Supercentres beginning in the mid-2000s and has become a major player in the retail grocery sector. Walmart’s success demonstrates that it is possible for a grocery-adjacent retailer (including convenience stores, mass / discount stores, e-commerce operators and others) to expand into grocery if the opportunity arises. Couche-Tard in particular has expressed a desire to further expand their food offerings into the grocery space, and Sobeys expects that they will continue to pursue this goal to the extent there is commercial opportunity to do so.

When compared to the other countries listed in Annex A of the Market Study Notice, Canada’s retail grocery sector is as or more competitive:

Comparing other countries grocery retailers

Country	Major Grocery Retailers
Australia	Market is led by two major grocery retailers: Woolworths Group and Coles Group. Together, the groups make 65% of national grocery sales, and operate a small variety of different formats including smaller urban stores, larger hypermarkets, convenience stores and liquor only stores.Footnote 2 Aldi, a discount retailer, and IGA, a series of independently owned grocers operated as a chain, represent a further 17% of total grocery sales.
Canada	Varies by region, with each region and the vast majority of communities being served by multiple major grocers. Loblaw, Sobeys, Metro and Overwaitea, Walmart, Costco and Giant Tiger compete in large regions or nationally. Over 24 local chains serve regional areas, and an additional 1,300 independent stores serve local communities. The three largest Canadian grocers (i.e., Sobeys, Loblaw and Metro) account for less than 50% of national grocery sales.
Germany	Four large retailers (Edeka, Rewe, Schwarz-Gruppe and Aldi) account for 70% of national grocery sales.Footnote 3 Each retailer typically operates a number of different formats including smaller urban stores and larger hypermarkets.
Ireland	Three large traditional retailers (Dunnes, Tesco and Supervalu) lead the market and account for 66% of national grocery sales.Footnote 4
Mexico	Market is highly concentrated and led by Wal-Mart and its wholly owned subsidiary brands, which control 68% of the market.Footnote 5 Two other retailers (Grupo Chedraui and Soriana) control a further 31% of the market. All grocers operate a variety of formats including smaller urban stores, larger hypermarkets, convenience stores, warehouse clubs and stores including non-grocery brands, such as clothing and general home merchandise.
New Zealand	Market is led by Woolworths Group and Foodstuffs. Each grocer has various wholly owned subsidiary brands catering to various segments of the market (budget-conscious, full-service, urban-formats, liquor).Footnote 6 Smaller retailers focus on specific shopping missions, product categories, or consumer groups (e.g., meal kits, single category stores, international foods, etc.), and do not offer meaningful competition to this duopoly. Costco entered the market with one store in September 2022, and is evaluating whether to open additional stores, with none planned.Footnote 7
United Kingdom	Varies by region, but generally the market is led by Tesco, Asda and Sainsbury’s.Footnote 8 These grocers typically operate full-service formats, but also have other formats including smaller urban stores, convenience stores and non-grocery brands, including clothing and general home merchandise. Morrisons, Co-Op Food, along with discount retailers Aldi and Lidl control a further 32% of the market.Footnote 9
United States	Nationally the market is led by three retailers (Walmart, Kroger and Costco), which control 33% of the market. Walmart is the market leader with 18% market share.Footnote 10 However, market shares and grocery competitors vary between regions and states.Footnote 11 In many local markets, Walmart captures 50% or more of grocery salesFootnote 12 and, the top three retail grocers capture over 50% of grocery sales in 8 out of 9 regions and over 70% in two regions. On October 14, 2022, Kroger and Albertsons, the fourth largest US grocery retailer, announced a US$24.6 billion merger which would boost Kroger’s footprint to nearly 5,000 stores.Footnote 13

In considering the table above, it is critical to recall that all of the above-listed countries, when compared to Canada, have some combination of larger populations, smaller geographic areas and more stable / consistent / predictable climates. Despite these logistics advantages, the table clearly demonstrates that Canada’s grocery sector is more competitive than its international peers. This helps to explain why international discount grocers such as Aldi and Kroger have not entered the Canadian market to date: the Canadian retail grocery sector is already intensely competitive.

The retail grocery industry is much more structurally competitive (i.e., because there are a larger number of compelling competitive alternatives available to consumers) than it was in 2013, when Sobeys acquired Safeway. And it is more competitive than the grocery sectors of other major economies. The range of competitive options continues to expand as technology helps to reduce logistics costs and enable new competition from various business models. Put simply, there is no lack of retail grocery competition in Canada, by any reasonable metric. In order to explain why grocery prices have risen since 2021, we must look elsewhere.

III. While Inflation Affects the Entire Economy, Higher Retail Grocery Prices Are Not the Result of Changing Competitive Dynamics or a Lack of Retail Competition

The primary driver of higher food prices over the last 18-24 months is inflation across the broader supply chain, not a lack of competition at the retail grocery level. Critically, grocers in general and Sobeys in particular do not benefit from these inflationary conditions and have strong economic incentives – through competition and other social and economic forces – to help Canadians mitigate the destructive effects of high inflation.

It must first be recognized that the prices of food commodities, as well as other key inputs to retail grocery, are rising at rates not seen in decades. Every single commodity in the Canadian economy has risen in price while the Canadian dollar has dropped, amplifying the impact of price increases given Canada’s position in the global economy. Increases in logistics costs in particular, including labour, packaging, freight, fuel and energy, have a significant and outsized impact on the retail grocery sector.

We acknowledge that increases in food prices have exceeded increases in the overall consumer price index in 2022. However, as Statistics Canada has noted, this disproportionate increase owes to “unfavourable weather, higher prices for important inputs such as fertilizer and natural gas, as well as geopolitical instability stemming from Russia's invasion of Ukraine”.^{Footnote 14} As depicted in the commodity analysis report, the price of staple commodities such as wheat, oats, rice and chicken spiked in February/March 2022 after the Russian invasion. Further, as depicted in the following diagram, Canada has experienced food inflation of the same approximate magnitude as other G7 countries and had one of the lowest food inflation rates compared to other G20 countries in 2022. Food price inflation is not specific to Canada (let alone to Canadian retail grocery).

• In 2022, Canada had lower food inflation than several G20 countries

  In 2022, Canada had lower food inflation than several G20 countries

  Location	Food Inflation (2022)	Food Inflation (jan-23)
  Canada	8.9%	11.4%
  US	9.9%	10.1%
  Euro Area	10.5%	16.3%
  UK	10.9%	16.8%
  Mexico	13.3%	12.8%
  UN Food & Agriculture Organization	14.3%	-3.2%

  Source: Statistics Canada, Economic Research Service USDA, Office for National Statistics UK, Trading Economics, United Nations

  High food inflation is currently a global phenomenon driven by supply chain disruptions, adverse climate conditions, and impact of Russia’s war in Ukraine

We recognize that international and macroeconomic factors such as Russia’s war in Ukraine are not within the ambit of the market study (or the Bureau’s mandate). However, these are the root causes of increased food prices, not a lack of retail competition (as demonstrated in the past section). Certain stakeholders may be tempted to channel facile arguments and throw out collusion or monopoly power as a lazy explanation for rising food prices; the Bureau is well-positioned to push back on such misguided theories.

Canadian grocers do not benefit from an inflationary environment due to the competitive dynamics of the retail grocery sector. In times of high inflation, grocers’ management, pricing and marketing teams must divert their attention away from other priorities in order to negotiate and manage cost increases from suppliers (along with the other marketing and operational challenges occasioned by rising prices).

Furthermore, Sobeys has a stringent process in place to manage cost increases and scrutinizes every proposed increase from its suppliers to ensure cost increases are justified by the challenging macroeconomic environment, and not merely a product of supplier power. Ultimately, these processes help to mitigate the impact of inflation, and would be unnecessary if the retail grocery industry were uncompetitive.

Further, on an overall basis in the last eight quarters, Sobeys’ increases in retail prices are very much in line with its cost increases, especially considering the extreme cost volatility due to the thousands of cost increase requests received over the last several quarters in this period of high inflation. The vast majority of Sobeys’ price increases are limited to the cost inflation that is occurring at every level of the supply chain. Indeed, because of the intense competition across the retail grocery market, Sobeys cannot opportunistically increase consumer prices at a level in excess of cost inflation. The reality is that grocery retail is a very complex business, with several other parties involved across production, manufacturing, distribution and warehousing.

Empire’s publicly available financial reports also demonstrate that it is not profiting from high food inflation. As shown in the chart below, Empire’s net margin in the last eight quarters has not increased disproportionately as a result of inflation and, in fact, Empire’s net margin in the first three quarters of fiscal 2023 was very much in line with its average performance over the last eight quarters (i.e., 2.4%).^{Footnote 15} In particular, Empire’s net margin was 2.4% in Q1 F23, 2.5% in Q2 F23 and 2.2% in Q3 F23.

• Empire Total Net Margins

  Fiscal Qtr.	Net Margin
  Q4'21	2.5%
  Q1'22	2.5%
  Q2'22	2.4%
  Q3'22	2.8%
  Q4'22	2.3%
  Q1'23	2.4%
  Q2'23	2.5%
  Q3'23	2.2%

  Source: Quarterly financial statements and company filings. Note: Q3’23 results is based on adjusted net earnings disclosed in Empire’s Management Discussion & Analysis (MDA). Excludes non-controlling interests.

It is also worth emphasizing that Empire’s net margins have held steady during this period of inflationary pressures and rising costs in products, fuel, labour, energy and construction. Despite rising input costs, Empire has maintained very consistent margins, reflecting our focus on providing customers with value in this highly competitive market.

Further, it is worth noting that we have a large franchisee network representing approximately 50% of our total business. During these periods of high inflation, our Full Service franchisees also do not profit from inflation, and as small business owners, they often face greater challenges to manage their business in a high-cost environment. The reality is that our Full Service franchisees are often the first players in the retail segment to feel the sting of high inflation, and as a company, we are doing everything we can to support them and ensure our offering satisfies changing customer needs. Furthermore, it is interesting to note that independent grocers are also experiencing similar supplier cost increases and cost pressures; in fact, they have publicly echoed the sentiment that cost pressures are beyond the control of all end retailers (large and small), despite being the focal point for discussions around food inflation and competition.

Sobeys understands that this period of high inflation has been extremely challenging for Canadian consumers and has been focused on finding ways to ease the burden brought on by the numerous and significant cost increases impacting grocers globally, reflecting both the degree of competition in the retail grocery sector and Sobeys’ core values as an organization. For example:

Sobeys ways to ease the burden brought on by the numerous and significant cost increases

Measure	Description
Private Label Brands Expansion	Sobeys is continually growing its assortment of private label products across all of its brands and has added 240 new SKUs over the past 12 months and plans to launch an additional 230 SKUs over the next 12 months. Sobeys’ private label products are co-located with equivalent branded products and accordingly compete with those products. Sobeys private label products are priced lower than equivalent branded products, offering consumers an affordable choice.
Value Size Assortment Expansion	Sobeys has been focused on growing its Value Size, large-format offering which provides consumers with the ability to stock up on staple products at a better price per unit. Sobeys has launched approximately 300 SKUs in Value Size products today and is accelerating its Value Size offerings, with 35 SKUs recently launched or planned to launch in the next three months in Fresh.
New and Improved Promotional Offerings	Sobeys has recently been focused on improving its promotional offerings in order to ensure the best value for consumers. For example, Sobeys has launched new flyer events in its full-service stores, including “Dollar Days” where popular items such as carrots, avocados and paper towels have been offered for less than $10. Sobeys also recently switched its loyalty program from Air Miles to Scene+. Scene+ points can be redeemed on a broad array of rewards and can even be used towards grocery bills.
Addressing Fuel Inflation	As Sobeys also operates retail fuel locations, it runs promotional activities to reduce the price of fuel for consumers in critical times, such as during back to school in September.

As demonstrated by the above, food price inflation is not a function of decreased competition between retail grocers in Canada, but instead is a result of broader inflation in the entire economy and, in particular, in the upstream grocery supply chain. Retail grocers like Sobeys are not benefitting from inflation; rather, Sobeys’ significant efforts to reduce the impact of inflation on consumer pricing is evidence of robust competition.

IV. There is Scope for Improved Competitiveness in Retail Grocery, but the Bureau Must Proceed with Caution

From Sobeys’ perspective, the output of the Bureau’s market study should be concrete and actionable policy advice that will help guide policymakers in addressing the underlying causes of food price inflation. Food prices are not rising due to a lack of retail competition, and indeed Canada’s grocery sector is more competitive than many other countries. The Bureau’s guidance should be careful to avoid encouraging heavy-handed measures that undermine what is working well: free and open retail competition. However, there are several areas where policy guidance from the Bureau would be very helpful.

At the outset, it is important to recognize that key recommendations of the foreign studies cited in the Bureau’s notice are already in place across virtually all grocers in Canada, and that some of the other recommendations issued in the foreign studies were later disregarded as unhelpful or unfounded given real-world market dynamics.

The foreign studies issued by Australia and New Zealand concluded that mandatory, standardized unit pricing was necessary to promote greater competition on price by allowing consumers to make informed purchase decisions based on “apples-to-apples” pricing in a simple and easy way.^{Footnote 16} Prior to this recommendation, unit pricing was implemented on only some products and by some retailers in these two countries. Competition, or other factors, had not resulted in unit pricing’s widespread adoption. In Canada, unit pricing is voluntarily displayed by virtually all grocers outside of Quebec, and on a mandatory basis in Quebec.^{Footnote 17} The existing widespread implementation of unit pricing outside of Quebec demonstrates that grocers in Canada believe competition on price is central to their ability to maintain and grow their market share, which accurately reflects the reality that the grocery market in Canada is already extremely competitive.

Other key consumer-facing recommendations issued in the foreign studies, including transparent disclosure of loyalty program data collection, and simplifying promotional practices are already addressed in Canada.^{Footnote 18} Grocery loyalty programs, as a result of relevant privacy and data collection legislation, are already required to disclose the collection of loyalty program data and do so in considerable detail. Moreover, the problematic promotional practices identified in New Zealand (such as not displaying the original price during promotions, not distinguishing member-only discounts and using multiple layering discounts to confuse consumers) are generally not present in the Canadian market. Grocers in Canada regularly identify member-only prices, where those exist, in addition to usually displaying original, pre-discount prices. Unlike New Zealand, which is subject to a grocery duopoly,^{Footnote 19} Canada’s highly competitive market resolves these issues without the need for regulator intervention.

The United Kingdom’s Foreign Study recommended the introduction of a local competition test which would prevent the expansion of strong incumbents in highly concentrated markets. The measure was successfully challenged by a major grocer and the recommendation changed to include an exception for a small store expansion every five years.^{Footnote 20} However, the local competition test was not implemented following a 2010 study which showed that its effects would be minimal given real-world market conditions, which were not taken into consideration when issuing the recommendation.^{Footnote 21} Recommendations such as these (prescribing where and how competition can and cannot occur) are fundamentally contrary to Canada’s system of competition laws, highly likely to have perverse consequences and should be avoided.

Sobeys acknowledges that the Bureau does not plan to focus its market study on issues relating to the purchase of groceries from suppliers by retailers. However, we would highlight that historical Bureau enforcement – and some foreign studies – has been focused on dealings between suppliers and retailers. In many cases, the behaviours questioned by the Bureau (e.g., ad match policies) had the effect of reducing retail prices for consumers. Policymaking and enforcement activity can have a chilling effect on the proper functioning of the competitive marketplace. We submit that the Bureau’s recommendations should focus on unwinding or adapting government policies that result in market failures and thereby amplify competition, rather than encouraging governments to act as central planners in a very complex industry.

In our submission, the most valuable policy interventions that should be the focus of the Bureau’s market study include:

• Ending supply management. The Canadian dairy and poultry sectors are subject to complex systems of quotas, pricing and import control that significantly distort competition for these staple food items. The Bureau should consider measures to restore competition in these sectors.
• Supply chain failures. Government policy leads to disruption and congestion at Canada’s ports, which impacts the flow of imported goods and tightens supply. The Bureau should encourage policymakers to increase capacity and resolve these challenges.
• Labour shortages. Labour shortages drive higher costs across the entire grocery supply chain (from sourcing to distribution to transportation to in-store costs). Governments can support competition by taking steps to reduce labour shortages. Temporary public policies can facilitate the entry of foreign works in the supply chain and logistics sectors. Temporarily prioritizing the processing of work permits in the supply chain and logistics sectors (e.g., reducing the processing service standard) will help to increase supply of labour and temporarily suspending the Labour Market Impact Assessment process for supply chain-related occupations will expedite the processing of supply chain workers. The Bureau should encourage policymakers to pursue these kinds of initiatives.
• Support not-for-profit programs. As in other sectors, food price inflation has the greatest impact on low-income families. Grocers are supporters of programs and initiatives that target assistance to these populations. For example, Empire is a major supporter of Toonies for Tummies, and there is significant opportunity for governments to partner with retailers to help maximize the impact of such programs. In addition, government policy can help encourage the reduction of food waste: Empire works extensively with Second Harvest to provide expiring goods to local food banks. Government policy has the power to maximize the impact of these programs.
• Grocery code of conduct. In response to a federal government priority, Empire is working with other grocers and suppliers to develop an industry code of conduct which will increase transparency and improve how retailers and suppliers negotiate. Unlike government-organized codes of conduct in Australia and the UK, the Canadian process is industry-led and responsive to the needs of stakeholders at all levels. It will be vital that all players in the grocery industry – including American retail grocers such as Walmart and Costco, suppliers, and other contributors to Canada’s food supply chain – participate in the code of conduct. The Bureau should provide its input on and support the development of this code of conduct, including by encouraging the participation of all major retailers, food suppliers and industry players.

V. Conclusion

The Canadian retail grocery sector is extremely competitive, and the price increases observed in Canadian grocery stores are not evidence of a lack of competition at the retail level. We welcome the Bureau’s market study and look forward to being able to contribute further. We also recognize that the Bureau will receive input from stakeholders with a variety of different positions, and we are concerned that recent reporting in the media and statements by policymakers reflect facile arguments and a lack of understanding of how the grocery sector operates. We encourage the Bureau to adopt a careful, economic, open-market and evidence-driven approach to ensure that the competitiveness of Canada’s grocery sector is maintained and that policymakers are properly informed about the factors that really lead to higher prices for Canadians.

Appendix A

Independent Grocery Delivery Services Serving Major Canadian Municipalities

Municipality	Independent Grocery Delivery Services
Vancouver	SPUD.ca, Kiki’s Delivery, Fresh St. Market, Larry’s Market, Strong’s Market
Victoria	SPUD.ca, Good Food Box, Red Barn Market
Calgary	Alberta Grocery, Bessie Box, Best of Calgary, The Grocery Link, The Organic Box, SPUD.ca, Sunterra Market
Edmonton	SPUD.ca, Italian Centre Shop, JY Grocery Delivery, Edmonton Grocer
Saskatoon	Pitchfork, Prairie Meats, MrsGrocery,
Regina	Deliverr
Winnipeg	Dakota Family Foods, Cantor’s Meats
Toronto	100km Foods, Fresh City Farms, Grow Gather & Co., Cibo Market, Elle Cusine Market, Mexican Collective Store, O&B, Country Boys Produce, Easy Peasy Grocery Delivery
Ottawa	Ottawa Shoppers, FillMyFridge, Ottawa Organics and Natural Foods, Ottawa Valley Deliveries
Montreal	Mourelatos, Eden Market, Le Pro, Epicerie Mile-end, Raza Supermarket
Moncton	Codiac Organics, Dolma Food, Local by Atta, Taste of Homeland, MrsGrocery
Halifax	Couryah, MrsGrocery
Charlottetown	Charlottetown Express Delivery, MrsGrocery
St. John’s	Colemans, Belbins Grocery