Mike von Massow
Thoughts on Loblaw No-Name Price Freeze
The recently announced price freeze on No-Name Products has garnered a lot of media attention. I am getting a lot of questions about it and thought I would put together a short post on some of the questions and my responses to them.
1 - Is the No-Name Price Freeze a Bad Thing?
This is an easy and definitive no. Food price inflation continues to be an issue. Getting some price certainty for a portfolio of products does create some certainty for consumers. It doesn't provide relief from high prices but does protect consumers from further increases in the short term.
I get all the cynicism. It could have happened earlier. It could have lasted longer. It could have been on more products. BUT it is something. Perhaps the investment in ads announcing it was over the top and bad strategy, but it seems we started with criticizing companies like Loblaws for increasing prices and now we're criticizing them for not increasing prices. What would we have them do?
I also think that the No-Name products are a good group to use for an initiative like this. Store brands are easier to commit to but these store brands are at the low end of the price spectrum in the categories that they compete. Consumers who are feeling the most price pressure will be the ones who will benefit the most from this price freeze. These price freezes don't take pressure off the consumers who buy them but they do mean that there won't be more price pressure in the next three months for these products.
Now I am not naïve enough to say this is a purely philanthropic move. I expect that they have contracted their supply and had their suppliers lock in input prices to mitigate the risk of price increases. I also think that the ads touting this freeze were a bit self serving but again - don't look a gift horse in the mouth.
I also acknowledge that the announcement comes just as a parliamentary committee is looking into the reasons for price increases. I expect the timing is not a coincidence.
2- Are Grocers Taking Excessive Price Increases Under the Guise of Inflation?
I've written on this a couple of times already. There is no evidence that there have been substantial increases in margins at grocery stores in Canada. I'm not the only one saying that. There are lots of examples of others who have looked at prices, margins and profits and suggested that "greedflation" or profiteering are not the problem.
Prices are going up. They are going up for lots of reasons including the war in Ukraine, climate change, COVID supply chain disruptions, among others. Its easy to blame grocers as that is where we are giving our money. I frankly think it is myopic and opportunistic that the Federal NDP and other politicians are blaming grocers. We can definitely look at why prices are increasing and what governments can do to help, but focusing on one unlikely scapegoat is not going to be productive.
To be clear, there may be some incremental price increases but there is no evidence of it. Margins aren't up. Grocers have made bigger profits during COVID because their volumes have gone up. Restaurants were closed or reduced so we bought more at the supermarket. Now we're eating out less (because of price inflation) and that is contributing. Why would we ask specifically grocers to reduce prices and profits when we're not asking other companies to do the same? If we had an effective corporate tax structure they would be paying more.
"We can definitely look at why prices are increasing and what governments can do to help, but focusing on one unlikely scapegoat is not going to be productive."
3 - Will Other Grocers Follow?
I think there is already evidence that other grocers will follow. Metro came out and said that this was no big deal because everyone price freezes for this time period. I don't know if this is true or not. It may be true and Metro is just trying to take the air out of the Loblaws announcement - this does create some competitive pressure. It could also be that this has evolved as a common strategy over the years for store brand products and Loblaws took advantage and leveraged it.
I've heard some people say that this is a sign of collusion. My initial response is that who believes that stores are colluding not to increase prices? Collusion is usually to the detriment of customers. I suppose that you could think that prices are raised just before the freeze but there is no evidence of that this year or in the past . This strikes me as ridiculous. Grocers compete with one another for share - it is a very important metric. The Metro release was poorly worded but I doubt that they would send out a release that says we get together and raise prices early and then freeze them over the holidays.
I expect we will see more formal commitments to this and perhaps a step further in an effort to compete in the PR space and to minimize the loss of customers who might be tempted by the No-Name offer.
4 - Is This the End of Food Price Inflation in Canada?
This is a price freeze on a selection of products in one store. It does provide some benefit for shoppers (particularly the more vulnerable lower income consumers) to know that there will be a temporary fix on the prices for those products. It does not, however, mean that the underlying factors increasing food prices are going away. Unfortunately price inflation will continue to put pressure on on food budgets with ongoing price increases.
5 - What Can Governments Do?
Many of the factors affecting food prices are out of control of governments (and for that matter grocers). The federal government can't stop the short term impacts of climate change. The federal government can't end the war in the Ukraine. There is going to be a parliamentary committee that will look at this and I hope they look beyond just the grocery stores.
If they can't affect the cost of food, perhaps the only thing governments can do is to help vulnerable Canadians meet the challenge of higher prices of everything - food, shelter, transportation . . . . . . The working poor and those on assistance are feeling the pinch more than the rest of us. That is not to diminish the impact of inflation on everyone but most of us aren't wrestling with whether to pay rent or buy food this month. Focused support to bridge the gap until the inflationary pressure eases.
Recommended citation format: von Massow, M. "Thoughts on the Loblaws No-Name Price Freeze". Food Focus Guelph (131), Department of Food, Agricultural and Resource Economics, University of Guelph, October 18, 2022.