Front Burner - How Loblaw inspires anger, boycott

Episode Date: May 6, 2024

On May 1st, the people behind a subreddit called r/loblawsisoutofcontrol launched a nationwide boycott of Loblaw-owned stores for the month.The very same day the boycott began, Loblaw Companies Limited released its first quarter earnings numbers. Its profits went up by almost 10%, and its revenue by over $13-billion.Today on Front Burner, why did Loblaw become the primary target of Canadians’ grocery anger? Can something like a boycott or more competition really keep it in check? And should we think of Loblaw less like a retailer, and more like Amazon?Vass Bednar is our guest. She's the executive director of McMaster University's Master of Public Policy and Digital Society program.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. We recognize Loblaw isn't the only problem, but our community felt that they are the biggest problem. And the hope is to make sweeping industry changes and that these other grocers will take note of what's going on here. So this is Emily Johnson. She is the founder of a Reddit group called r slash Loblaws is out of control.

When she started this group in November, there was just a small number of people who were sharing memes about high grocery prices. But the page now says it has over 70,000 broke Canadians as subscribers. Now says it has over 70,000 broke Canadians as subscribers. And last Wednesday, the group launched a month-long boycott of Loblaw-owned stores. It's stealing national headlines. Growing frustration at high grocery bills has sparked backlash against large retailers, with some Canadians vowing to boycott Loblaw. Loblaw, more than most, has become a lightning rod for consumer resentment,

sparking memes and mockery. Everybody's having hard times right now, so I think it's wonderful to boycott an idea to save money. The very same day the boycott began, Loblaw Companies Limited released its first quarter earnings numbers. Last quarter, Loblaw, which owns No Frills, Real Canadian Superstore and Shoppers Drug Mart, saw its profit increase nearly 10%, with net earnings of $459 million. For its part, the company has been very steadfast that it hasn't profiteered on the back of inflation.

Loblaw chairman Galen Weston said the boycott is, quote, misguided criticism. quote, misguided criticism. So today, why did Loblaw become the primary target of our grocery anger? With its power across so many industries, can regular market pushback like a boycott or more competition really keep it in check? And should we think of it less like a retailer and more like an Amazon? Vas Bednar has been writing about all of this. She's the executive director of McMaster University's

Master of Public Policy and Digital Society program and the host of the podcast Lately over at The Globe and Mail. Vas, thanks so much for coming on to FrontBurner. It's really great to have you. Thanks for having me. So before we get into the real issues, I just want to point out that taking shots at Loblaws has kind of become this weird cultural phenomenon in Canada. I'm thinking how the group Opera Review put out this Les Mis parody called Les Miser Loblaws.

I don't know if you've seen it. It's inflation. It's the war. But the Western sky high compensation have pushed the average Canuck down to the floor. And just talk to me a little bit about that. What have you been seeing? Yeah, it's definitely kind of hot right now. I mean, we also see Loblaw shortened or, you know, amended to Rob Law. And there's lots of merch on Etsy stores.

And Canadian artist Christopher Lamb has a store where he sells merch. Instead of no frills, it says no shame. And I think maybe that captures some of the resentment or pushback from Canadians that we're starting to see with the firm. I didn't know about any of this merch. Is it fair to say to that Galen Weston, at least for some Canadians, has become kind of this villain, like in a tight sweater. In a tight sweater. You know, I just think there's something deliciously ironic about a billionaire whose family lives in a castle kind of wearing that sweater vest and selling us on a discount grocery brand. I know food prices are top of mind these days.

They just keep going up. Your grocery bill is higher because it costs manufacturers way more to produce products than it has in decades. That's clearly no comfort when you're worried about your own food bill. Right, the no-name brand that is sold at no frills. And I think that's why there's kind of this knee-jerk resentment.

I know that the company has said the criticism is unfounded, but in terms of what people represent, right, in terms of income inequality, dynastic wealth, I think that's more what people are really concerned about here, which is whether or not Loblaw is price gouging, right? So there's this real gap, as you mentioned, between what Loblaw is describing and what customers are describing. And, you know, what do we know about whether or not the grocery store is profiting off inflation, has been price gouging groceries? You know, it's really murky in terms of what we can know concretely. We're starting to see people use publicly available evidence, right? Finding old flyers, kind of screenshots and saying, OK, in 2019, for example, two bags of chips cost this. Now it costs this much. But this worry, this concept of pandemic profiteering or greedflation in economics is often referred

to as seller's inflation. And it's global, right? We've seen it happening global. The IMF has done research and found that it's a source of almost 40% growth in profits overall. So again, could Loblaw kind of be a microcosm for some of this trend and resentment that we're all seeing? Probably. No matter how many times you read it on Twitter, the idea that grocers are causing food inflation is not only false, it's impossible. you know you see a lot of people also commenting on their profit margins right so this is something that we've talked about on the show with economist jim stanford you know he's saying you know

essentially the industry is not just blah blah but the industry's profit margins have basically doubled in recent years. So, you know, people often point to that as like, there it is, there's the proof, there are numbers here. Right. And the Bank of Canada, Tiff Macklem is paying attention to this type of corporate pricing behavior. They use this phrase, corporate pricing behavior. And I had been sort of following that, texting my friends about it, because I was like, what, you know, what do they mean by that? We will be closely watching the evolution of core inflation, and we will remain focused on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behavior as indicators of where inflation

is headed. I think they mean that Economics 101, as the price of inputs goes down, the price of the product should subsequently fall. But that's not a trend that the bank has seen. If I could quote Macklin for a second, just because I think it's, again, important to attribute this to him. He said,

it used to be that when input prices went up, Canadian firms were cautious about passing those costs to consumers to not lose them. But recently, when input prices have gone up, they're passed through much quickly to final good prices. So households are bearing the inflationary impact much more. We can see that, he said, pretty clearly in the data. I guess the argument is how else would you explain profit margins that have grown that much, right? Well, I mean, one of the things a company like Loblaw would do, and they have,

you know, testified to this in parliamentary committee, and I think the Competition Bureau has noticed this last year when it was doing its grocery market study, rather, is that a firm like Loblaw can cross-subsidize with other companies that it owns, for instance, Shoppers Drug Mart. Yeah. Yeah. And just to reiterate what you said, this is an argument that we've heard quite a bit when the grocery store CEOs were pulled in front of that parliamentary committee, right? That it's not necessarily food that they were making all their money on. It was like other parts of their business. Non-grocery products like financial services, apparel, and importantly, Shoppers Drug Mart,

make up more than half our business. We've been clear. It's the efficiency of our business and the strength of categories like cosmetics, even cough and cold, that have been driving our growth, not food. Why is it that the answers to this seem so unsatisfying, you know? One, because that's kind of a silly argument to make, right? When it's like, no, no,

the margins in grocery are really slim. We're making all our money in all these other ways. Okay. Two things. There's one element that has changed since that grocery study last year, which is the Competition Bureau now has something called market study powers, which means it can compel information from companies when it's conducting an intervention. Previously, it just sort of had to ask really nicely. So it had to work with the information that it received. And that's part of why we weren't able to parse through those numbers. And we're also seeing policy progress on introducing more data transparency along the agri-food supply chain.

So again, I think people are more aware, more curious, and want to understand how prices are set, all those kind of inputs, all those components, recognizing, of course, that climate change, geopolitics, etc., all factor into, at least partially contribute to, the price that we see on or off our shelf. And fair for me to say that we don't have that kind of transparency even now, right? No, no, we don't.

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and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. So just coming back to LaBla,

this distrust that you were talking about, the anger kind of directed at this company in particular, I'm wondering, too, if some of it has to do with some like high profile controversies in the last decade. You know, for example, the bread price fixing scandal that Loblaw admitted to being a part of. The Competition Bureau alleges that senior officers at the bread suppliers work together to raise wholesale prices, then met with the retailers. The Bureau believes each retailer agreed to the hikes as long as their competitors were on board.

After 16 years of artificial price increases, we're all paying at least an extra $1.50 for each loaf of bread. Like, do you think that this contributes to the fact that people just do not believe them? I think that definitely broke Canadians' trust in the firm and all sorts of grocery stores, and we haven't seen maybe enough to repair that trust. At the same time, while people have had these concerns about price inflation during the pandemic, we're sort of getting dinged in all these tiny ways that we have to be really vigilant about. Shrinkflation, right? Usage inflation, the product quality going down because suppliers are substituting palm oil or something like that. Those are kind of these micro ways we're kind of constantly rolling our eyes. But we've also seen the power of people,

ways, we're kind of constantly rolling our eyes. But we've also seen the power of people, the power of people to say no. So when Loblaw tried to stop discounting produce that was about to expire, it used to be a kind of rule of thumb that it would be reduced by 50%. They started changing that they were slapping on 30% discount stickers. And people kind of roared. So Loblaw backtracked, saying it would bring back the 50% markdowns where they existed before. So again, that's a kind of, I definitely agree it's a misstep on their part, but I'm kind of proud of the power of people to stand up and say no and reject that. The other thing when we're talking about Loblaw and why it's gotten so much attention, I think we also have to mention its sheer size, right? Like the company says they own a grocery store within 10 kilometers of 90%

of Canadians. But even then, why is that not even the full picture of Loblaw and how it's so much bigger than that? Just talk to me about that. Something that Loblaw does that a lot of retailers do is mimic digital platforms in that they both own and operate a marketplace, right? So Loblaw's grocery store or a No Frills grocery store or other subsidiary grocery stores that they have, it's not just a retailer that's, you know, first of all, open to anyone to get on the shelves, they kind of gatekeep, they decide who gets to be on the shelves, they charge them for being on the shelves, etc. But they also directly compete with those suppliers, they have these private label brands. And it's not always labeled that it's like, owned by Loblaw, we mentioned no name earlier. And I think there's that's much more in the public consciousness in terms of how the company has co-branded. But like Canadian Tire, all sorts of stores have this kind of reality that starts to create the

illusion of competition. You think that there's more competition out there than maybe there actually is. So these stores are really, really big and it seems like there's a lot of products there. But some mystery subset at the end of the day are number one, owned by the parent company. And number two, as a result, you learn a lot more. You know what products are really popular at what price. And you can start to price discipline your competitors out of that market. You can also just decide not to carry a competitor anymore. Now, that's perfectly reasonable from a competition perspective. You know, my inner business shark, she's somewhere in there, sees why, you know,

why wouldn't you do that? We don't really always have the vocabulary and competition to really talk about those behaviors. I know in the past you have compared LaBla, you know, less to a grocer and more to an Amazon or Google. Just talk to me a little bit more, elaborate a little bit more on why that is, like so that you can help people in the way that they think about the company. is like so that you can help people in the way that they think about the company? Sure. So I mean, Amazon has had an antitrust case come forward related to its Amazon basic brand. And I mentioned the knowledge you can receive about a competitor just by owning and operating in that marketplace. But you can also in digital search, again, I'm sort of talking about groceries if we always go to the store.

I often order my groceries online. Am I lazy or am I savvy? You know, both can be true. Me too. Both can be true at the same time. Yeah. So I search online often. And you mentioned Google.

So that's like a good example in terms of a digital search. What comes up first? There are different organizing principles that search can have. We typically assume that the organizing principle is quality, right? We have people writing peer reviews, blah, blah, blah. But when you own and operate in a marketplace, you can self-preference your own products. No matter what, you can put your president's choice cookies first for people who are searching for cookies, and they may not be at the best price point. choice cookies first for people who are searching for cookies, and they may not be at the best price point. And just because of how our brains tend to be structured, that's a form of digital

architecture that nudges us towards making a particular decision. Like this must be the one, it came up first. 100%. 100%. So that's something that's kind of Amazon-like. And I think, you know, framing a company that we tend to think of as a grocer as being more kind of digitally savvy than it is at first glance, I find is really important, really important for this kind of radical shift we're seeing in Canada, where we're much more comfortable criticizing and talking about the companies in our backyard. criticizing and talking about the companies in our backyard. Historically, we kind of made this tacit policy decision that we wanted hometown heroes. We wanted to be able to kind of grow firms so that we could have national champions that can compete more effectively internationally. And I wonder if that caused us to kind of look the other way and sort of presuppose that just because a company is getting larger or has the market share ubiquity that Loblaw does, that we're less critical or less attuned to the strategies and tactics that the firm is able to use to see that growth and also protect that growth from new entrants coming.

So let me pick up on that, the idea of new entrants coming in, you know, the way that you have explained how, you know, a company like LaBla works, talk to me about how, you know, just a couple new entrants might not address the issue. Yeah, so I've sort of I have blogged about this, you know, in the grocery market study that the Competition Bureau did, they looked at other jurisdictions, they said, look, Canada is not alone on this. But here's some of what we've learned from elsewhere. And here's some of what we heard from potential competitors. Many grocery stores, many of the largest grocery stores in Canada are also landlords. So again, this isn't digital per se. But for a country that where geography has been our destiny for a lot of commerce, it's expensive to ship things everywhere. Our density is so uneven.

It can be really hard for a new entrant to come because, one, they can't get the space. They cannot access the land in order to set up shop or to set up shop on that scale, number one. Number two, I mentioned the private label products. There's been a lot of excitement, I think, at the prospect of like a Trader Joe's coming to Canada. They have very good snacks. I don't. They have amazing snacks and I love snacks.

But what I don't love are stores that sell up to 90% of products that they own, right? They don't necessarily manufacture them, but they own them. Again, these are private label. They're sometimes referred to as white label products. That's not the kind of competition that I and many others think we need more of. Let's be really honest. And let's, you know, talk about why we don't have more competitors in this space, because that starts to get at how competition is happening instead of, again, just the number of competitors. There are tons of smaller grocery stores and grocery co-ops in Canada. Many of them are being collected on a

website, altgrocery.ca, that I think is, again, part of this movement, part of this expression of people's discontent that I'm really hopeful is going to be really productive for Canada. Again, we shouldn't dismiss it. I don't think it's just a fad, but I do think it's going to be really productive for Canada. Again, we shouldn't dismiss it. I don't think it's just a fad, but I do think it's a moment and I want it very badly to be a hinge for Canada. I mean, if you had my druthers, yeah, if you could just, you know, whip up a few of those, what would you want to see that, you know, maybe our competition laws aren't equipped to deal with at the current time? Yeah, France has a new law that I'm a huge fan of. They've basically said shrinkflation is a scam. If you post the same price for a product that has decreased in size, you are doing something that is anti-competitive.

I think self-preferencing could be labeled on platforms. I think we could see an anti-inflation basket for all year. And we saw this temporarily. Loblaw did do this temporarily with their no-name brand. They made this major PR announcement. They said, To help hit the brakes on food inflation, we're freezing the price of all no-name products until January 31st. That's 1,500 essentials locked. Food prices go up, no-name prices won't. Guaranteed. But why not save all year this core basket of 50 or 100 goods? This is how much it's going to cost. We can guarantee you that it's going to cost us tons of money, but we believe

it's the right thing to do. And we hear you and we know that people want this. Again, interventions like that can be a source of competitive advantage. The firm can afford to take those losses and might even build more kind of brand, I guess, adhesion. They could also pay their workers more and do more to attract and retain talent instead of appearing to suppress wages with their competitors. But luckily, wage fixing is now illegal in Canada, thanks in part to the grocery stores, the grocery giants reducing hero pay. During the first wave, several chains, including grocery stores, drug stores, the grocery giants, reducing hero pay. During the first wave, several chains, including grocery stores, drug stores,

and home improvement stores, gave pandemic pay bonuses, in most cases an extra $2 an hour on employee paychecks. While some companies have since made pay increases permanent, others have pulled the bonuses back. The risk got greater, not less. Yeah, just to be clear, when we're talking about kind of um price caps right on you know maybe goods like eggs and bread and stuff are you saying that you want the stores to come up with that on of their own volition or you would like the government

to do that i wrote about this last year and someone lots of people made fun of me one person in particular said you know vast the 1970s call, they want their ideas back. There's two ways this could go. This could be legislated. We've seen it legislated in Greece as a temporary measure where grocery stores had to do that. or what we saw in France was the grocery store said, okay, hold the phone. Don't tell us what to do. We're going to come to you and convey how we're going to do this. We're each going to kind of go about this goal in our own way. That's what we've seen the grocery stores tell the Minister of Innovation, Science, and Economic Development here in Canada. But am I saying to you that we need more price controls? I think on a subset of food, we could do more to regulate not every single item at that price, but at least one brand or one option for people. Yeah, I think it's time to think about that more seriously.

You mentioned earlier in the conversation that we love a good homegrown success story, right? And I just want to read to you from a piece from the National Post editorial board last week. Sure. So, quote, in an era of sagging investment, chronically depressed productivity and flatlined living standards, Loblaw is a rare example of a Canadian success story that should be celebrated. And what do you think of that idea? Like, to be fair, that Canada should also really be cheering on this company's success. I think it's such a pouty position, and I think it's why people are reacting to the firm. I can

totally agree that the firm is innovative. I'm happy to go on the record saying that. I think a lot of my research and publishing on Loblaw has pointed to that. But I don't think that means the firm's off the hook as a result, right? Being successful doesn't mean that you don't need to be more responsible or attentive to your audience. The bar is set high for Loblaw, and it's time they started to do more to try to meet it. Vas Bednar, thank you very much. This is great. Thank you. All right, that's all for today.

I'm Jamie Poisson. Thanks so much for listening and talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.