The soaring prices at supermarket chains like No Frills and Loblaws have generated consumer frustration. Calls for boycotts are growing louder, but are they effectively addressing the root causes of high prices? To delve into this complex issue, two professors from the Lawrence Kinlin School of Business, Darren Chapman and Sharmistha Nag, shed light on food pricing and the challenges of finding a practical solution.

According to Chapman, the dramatic increase in food prices outpaces wage growth, leading to a higher percentage of net income spent on food. This shift has negatively impacted other areas of spending, such as recreation, housing, and clothing.

The surge in food prices is due to several factors, including reduced competition among suppliers and consolidation of brands under major companies like Mondelez International and Mars. This consolidation allows companies to raise prices due to diminished competition.

“Competitions are becoming less and less for various reasons,” Chapman explained. “Mondelez has been buying these brands and different food lines that now fall under one company umbrella, making the competition less and less. As a result, they can bump up the prices.”

Nag added that supply chain disruptions post-COVID, coupled with the effects of climate change, have exacerbated the situation.

“We have seen the rise in prices pretty much right after the economy opened up after COVID. One reason has been supply chain disruptions. The demand spiked after COVID, and then the supply could not keep up with the demand, resulting in price hikes. And then with food…climate change has resulted in droughts and different, unusual weather events. So that has also inflated the prices,” Nag said.

Both professors highlighted the oligopolistic nature of the Canadian grocery market as a critical factor in high prices.

Empire (Farm Boy, FreshCo, Safeway, Sobeys, Thrifty Foods, Longo’s), Loblaw (Loblaws, No Frills, Real Canadian Superstore, Shoppers, T&T Supermarket, Valu-mart), Pattison Food Group (PriceSmart Foods, Urban Fare) and Metro (Food Basics, Metro) make up the largest supermarket chains in Canada, reducing competition and giving these companies considerable pricing power. This situation contrasts sharply with the more competitive US or European environment.

“Loblaws charges more for packaging, and their power is high due to less competition,” Nag said. “The Canadian market is an oligopoly where a few significant companies capture a large market share, allowing them to set higher prices.”

Chapman agreed with Nag’s explanation, pointing out that consolidating grocery brands and stores under a few large companies means consumers often shop at different branches of the same corporate entity, limiting their ability to impact prices through boycotts.

Boycotts are a typical response by the citizens to perceived corporate greed, but their effectiveness is debatable in the context of essential commodities like food. Chapman argued that while boycotts can express consumer dissatisfaction, they are unlikely to lead to substantial changes in pricing due to the fundamental nature of food.

“A boycott may work if you’re paying too high a price for a non-essential item. But you need food. Who will cave first? The stores know, ‘We’ll wait you out,’ and eventually, you’ll return,” Chapman said.

Nag concurred, noting that unless a significant number of consumers participated in a boycott, its impact will be minimal. She also pointed out that alternative grocery stores have seen a spike in business, indicating some consumer shift. However, without broad participation, these changes are unlikely to pressure major chains significantly.

Addressing the root causes of high food prices requires long-term strategies to increase competition and improve supply chains. Both professors emphasized the need for government intervention to encourage foreign investment and create a more competitive market environment.

Nag suggested that government policies should focus on attracting foreign grocery chains to Canada, which could introduce more competition and drive down prices.

“The Canadian government needs to encourage more foreign investments, simplifying regulations to make the market more attractive to foreign companies,” Nag said.

Chapman stressed the importance of understanding the broader economic context and the cyclical market. He believes that improving financial literacy among consumers and policymakers is crucial for addressing the underlying issues affecting prices.

“Understanding how an economy works is paramount to understanding why boycotts may or may not work and what’s happening in the marketplace,” Chapman stated. “If consumers and politicians were more educated in economics, they would make more informed decisions that could lead to more effective solutions.”

The high prices at supermarket chains result from a complex interplay of factors, including market consolidation, supply chain disruptions, climate change, and insufficient competition. While boycotts can raise awareness and express consumer frustration, they are unlikely lead to significant price reductions.

Long-term solutions lie in enhancing market competition through government policies that attract foreign investment and foster a more competitive environment. Additionally, improving economic literacy among consumers and policymakers can lead to more informed decisions and effective strategies for addressing the underlying causes of high food prices.