Government Grocery Stores are not the Solution to High Grocery Prices

Does Canada need public grocery stores? The election of Avi Lewis as leader of the federal NDP has brought this discussion to the fore. There are councillors in Toronto and a newly elected Mayor in New York City who are also suggesting that publicly owned grocery stores are a way to reduce food prices. The truth, however, is that this is not the most efficient way to give those that need help, the relief they need.

The premise is relatively straight forward; the government would build and run grocery stores that would offer pricing at levels well below those that Canada's traditional grocery stores offer. Mr. Lewis and his advisers have suggested that government prices would be 35-40% lower than those Canadians are currently paying. The question is whether this is feasible and, if so, whether it would be the most effective way to deliver relief for stretched consumers. The answer is unequivocally no.

There are ways to effectively achieve the objective of improving grocery affordability. Government grocery stores just aren't one of them.

Mainstream grocery stores have the selection and volume that make it difficult for government run grocery stores to compete.

The Benefits of Scale

The visible component of grocery stores is like the tip of the iceberg of the supply chain. Successful food retailing requires significant distribution infrastructure to efficiently bring products to the retail location. Loblaws, Canada's largest food retailer has more than 2,400 stores. Empire Group, which includes brands such as Sobeys, has more than 1,600 stores. This scale allows them to achieve significant purchase volumes and also logistics efficiencies which lower distribution costs. We have seen regional grocers such as Longo's and Farmboy purchased by larger retailers with the primary motivation being allowing the smaller chains to benefit from the purchasing and logistics infrastructure of the larger purchaser. Scale matters and it will be difficult to achieve those efficiencies in government run stores - especially initially. Even these large retailers achieve relatively low margins, with operating income (revenue minus direct costs and excluding things like taxes and depreciation) representing between 4 and 6% of total revenue. It is difficult to believe that a new government run entrant will be able to achieve the same efficiencies so they would be starting from behind and would require substantial subsidisation to achieve discounts in the range of 35-40%. The money would be likely much better spent directly supporting those Canadians that require support in making ends meet, rather than on building infrastructure and paying more to suppliers than the large retailers do.

Limiting the range of choices

One suggestion is that the stores would only carry staples which would reduce the cost of inventory. While that is true, it is worth noting that one way grocers cover overhead is by the size of the basket of each customer. The basket is the total that each customer buys. Basket is an important performance indicator for grocers and they strategically price selected staples as loss leaders to bring people into the store. That means that margins on staples which would be offered in government stores are even lower and would require greater subsidies to achieve the desired discounts without the benefit of higher margin secondary products.

Are there other examples?

Proponents point to government run grocery stores in Mexico, army commissaries in the United States, and government control of alcohol and cannabis retailing in Canadian provinces. These examples, rather than supporting the notion of Canadian government food retailers, highlight challenges, costs, and different objectives which suggest that this path is not feasible.

Mexico has had government run grocery stores for years. The number of stores has declined significantly in the past decade with only approximately 50 remaining, located predominantly in the Mexico City area. Price comparisons are tracked regularly by Profeco (the Federal Consumer Attorney's Office of the Federal Government). They report that the government run stores are less than 2% cheaper than Walmart (the dominant Mexican food retailer) and that there are other private grocers that are much cheaper. There is also a significant informal food sector of market stalls that offer a variety of products. Clearly this option is not achieving cheaper groceries for Mexicans in the range of 35-40% without direct subsidisation.

The US Army Commissaries offer groceries that are almost 25% cheaper on average for active service members and veterans. The commissaries are established on army bases. Federal appropriations pay for labour, rent/real estate, distribution costs, and other overhead. The annual subsidy represents approximately 25-30% of sales which means that it is costing the US government more than the reduction in prices to achieve the discounts. with an ongoing backlog of maintenance also increasing the deficit. There is some suggestion that the commissaries should be privatized to achieve some of the efficiencies of larger chains while still providing cheaper options for soldier's families and veterans living close to the bases. A better option may be just to pay soldiers more.

The alcohol and cannabis enterprises in provincial jurisdiction are not designed to lower prices. In fact, they are explicitly designed to collect taxes and control prices. The policy objective is completely different. If we were trying to tax food and control higher prices, this approach would make sense. The objective is, however, to lower prices so this comparison is invalid.

So is there anything we can do?

Food prices are rising for a variety of reasons such as geopolitical events (wars in Ukraine and Iran), climate events (warming and extreme weather), and others which are largely out of the control of Canadian governments.

Canada has a program for lower income Canadians in which some GST/HST is paid back. [In the spring of 2026 the federal government provided a one time payout to eligible Canadians and an increase specifically attributed to food costs that will be in place for the next five years. This is intended to buffer low income Canadians from rising prices. It is not in the range of 35-40% but is intended to much of the increase we have experienced in the last three or four years. This program provides direct and targeted benefits for those feeling the most pressure from rising food prices.

There is also a program in place to reduce the cost of staple items in northern communities. Nutrition North provides subsidies to northern retailers to lower the cost of selected staples in communities that experience high levels of food insecurity and face high transportation costs. Research suggests that the subsidy is, on average, fully passed through to consumers. This program is interesting because it targets a specific subset of food. Milk and bread are cheaper but frozen pizzas are not. The program does not provide the ability to target specific consumers like the tax rebate does, but does allow for focus on selected foodstuffs.

What is the best approach?

The policy objective for a government food retail chain would be to lower prices. The challenge is to have enough stores to realistically benefit all Canadians. How would governments decide which communities got stores and which didn't. The cost of building thousands of stores would be prohibitive and 30 or 40 would lead to inequitable access and higher costs to government than would be experienced by consumers. It would also dilute the benefit for the most needy as access would be open to everyone.

If our desire is to help those Canadians struggling the most with food affordability, direct payments are the best way to do it. It will provide the most efficient use of taxpayer money and allow us to target the benefit. A program like Nutrition North would focus on selected staples but precludes targeting specific consumers. Perhaps a card or voucher system would allow targeting and selecting eligible food products, but this would introduce significant new administrative costs, diluting the direct benefit to recipients or raising the cost of the program. There are ways to achieve the objective. Government grocery stores just aren't one of them.

Recommended citation format: von Massow, M, "Government Grocery Stores are not the Solution to High Grocery Prices" Food Focus Guelph (140), Department of Food, Agricultural and Resource Economics, University of Guelph, April 20, 2026.

Keywords: food, food prices, food inflation, affordability, grocery, policy