Canadian food prices rising, but for good reasons

The quality and service we are receiving have never been better, Sylvain Charlebois writes.

Canadian consumers had to handle higher prices at grocery stores this year. Food prices rose by 4.1 per cent, significantly above inflation. It means the average Canadian household paid about $325 more than last year.

If we believe forecasts for 2016, Canadian households may pay an additional $365 for food over the next 12 months. As most of the industrialized world is seeing lower food inflation rates these days, one wonders why Canada’s food retailing landscape is in such sharp contrast.

In most of Europe, starting with Britain, food inflation rates barely reached one per cent during the past year. In some regions, supplies exceed demand due to Russian embargoes that began a year ago. This is the case for dairy and meat products, in particular.

The U.S. still has the cheapest calories in the world. Most households spend less than seven per cent of their budget on food — under half of what European households spend. In recent years, Canadians have seen higher food prices, with meat increasing by 30 per cent in two years. Yet Canada is still where you find the cheapest food basket in the world relative to salaries.

Hard as it is to believe, only a handful of countries offer a better deal than Canada’s food prices in relation to consumers’ wealth. Using only the U.S. as a benchmark is unwise. On economics alone, America’s population density and sugar-centric food trends makes its market different from ours, at least on pricing.

So who wins with higher prices? Food distributors. Most posted impressive financial results. Food retailers in Canada are doing well as they face lower competition and generate higher profit margins. The sector was able to successfully transfer top-line gains into bottom-line increases — no easy task. It appears there is market discipline as food retailers continue to protect margins. Shareholders are obvious shortterm beneficiaries, but consumers only gain from a financially healthy food distribution sector.

With incredibly low margins, price wars generate casualties, like those in the 1970s and early 1980s. A highly competitive marketplace in food retailing forces everyone to compete on one common denominator: price. Everything else becomes secondary: service, taste, experience and variety. With a better balance of power in the marketplace coupled with better management, the industry can respond to consumer needs.

Shopping for food is getting more expensive in Canada, but the quality and service we are receiving from industry has never been better. Let’s hope Canadian consumers are noticing.

What’s dearly needed, though, is female leadership. Given that the majority of consumers shopping for food are still women, it’s still surprising that few play an influential role in the industry. The gender imbalance becomes obvious, even embarrassing, when attending key events and award ceremonies. Almost 90 per cent, if not more, of those who occupy key roles are men. All are very capable, but in an era of food democracy in which the voice of the consumer is key, women need a stronger voice as executives. As such, the industry would only get stronger.

This needs to happen because, as one well-known Canadian reminded us recently, “it’s 2015.” Well, practically 2016 …