I think a lot of people fail to understand the business model of modern large food retailers. It is the same model in Canada, the USA, in Europe, anywhere.
In Canada, large food retailers are extremely consolidated.
What people think the business model is: The food is the product, and you are the consumer. They think that these companies succeed because they can use their scale to bring you superior products at lower prices than a smaller company can. At worst, they may use their scale to engage in competitive business practices to drive smaller retailers out of business and consolidate power, or collude as happened in the infamous Canadian bread price-fixing scandal.
What their business model really is: You are the product, and packaged food conglomerates are their real customer. They sell product placements in physical stores and online to packaged food companies, and surveil you both online and in physical stores to sell data about you to packaged food companies. In this regard, Loblaws, Sobeys and Metro act more like a social network selling ad placements and ad performance data than a small independent grocer selling food.
Imagine you are shopping online, and you search for an ingredient. Which brand is featured? The brand has paid for those search results. Imagine you bypass those paid search results and purchase a brand you are loyal to, but then they are out of the product and they swap in a new brand, that swap may have been paid for too. Now next time you shop, they offer to sell you the swapped brand again as a repeat purchase. That may have been paid for by the new brand as well. Most importantly, they dynamically adjust the price for each individual according to what their advanced algorithms think you will pay based on their massive data set about you and others they think are similar to you.
There’s sponsored product ads throughout the experience and the idea is you don’t even realize it. We’ve had sponsored products on our sites for a couple of years now and nobody seems to notice. – Lauren Steinberg, Loblaws Digital. [reference]
Similar things happen in physical stores, that is why you must identify yourself with their loyalty card in order to get the better prices. They make more money selling data about you to packaged food companies than they do jacking the prices for people who choose not to be tracked by the loyalty card. But facial recognition will probably make loyalty cards obsolete at some point. I suspect that these advanced humanless checkout techniques are less about saving money on cashiers and more about surveillance. If they can use AI to track you in-store as you add items to your shopping basket, they can also track your emotional sentiment at the moment you choose what brand to buy and sell that data to the brands. I am not alleging that this is happening today at scale, but this is most likely the next step. Loblaw’s Digital does have a 1000+ army of data engineers working on capturing and monetizing all this data. It’s fascinating to watch this evolve.
For further reading, check out Cory Doctoraw’s scathing review of Amazon, it is enlightening. I highly recommend his book on the subject.
In the end, I would say that a good solution to bring down food prices in this brave new digital world would be to have a separation of concerns between the intermediary representing the food shopper and the intermediary representing the food producer or brand.
Imagine a standardized open protocol that would allow small food brands to sell their products on an open marketplace. Imagine a food coop that could scan this marketplace and curate products on behalf of the shopper using this open protocol. On one side of this protocol there is a marketer is looking to get the highest price and the most sales for the brand, and the other side are stores looking to get the lowest price for the shopper. This is how things used to work when there was an ecosystem of independent wholesalers and buyers. My grandfather was one such independent food wholesaler, as a child I grew up surrounded by forklifts running palates of fresh produce destined for independent grocery stores across the city. We were eventually pushed out of business when Safeway vertically integrated it’s supply and consolidated it’s hold on the market.
There are many precedents for crafting radically different ways to connect food sellers and food buyers. I grew up in Vancouver, where the Canada Housing and Mortgage Corporation, a government entity, owns and operates Granville Island Public Market, which was an absolutely magical place that a modern food retailer simply cannot replicate. Similar markets exist in most Canadian cities. The St Lawrence Market in Toronto, the Byward Market in Ottawa, Marché Atwater and Marché Jean-Talon in Montréal are all more than tourist destinations, they are central to the urban fabric of these cities. I currently live in Portugal, where each borough of Lisbon has a government run Mercado, many of which are struggling to be honest, but some of which have been invigorated with a flush of private investment under new management. The world famous TimeOut Market in Cais du Sodré is expanding from Lisbon to New York and Paris. Government intervention created space for these markets to provide not only a market for small independent farmers and fishers and butchers and bakers to sell their products at a fair price, but also to give people the opportunity to buy good healthy food at a reasonable price. It doesn’t always work out as planned, but it is a business model that has huge potential when done correctly.
Consumers can also band together without government help to create co-ops, as happened in Vancouver when Vancity provided a customer run banking co-op to fill the gaps left by Canada’s big 5 banks. I was a founding member of the Mountain Equipment Co-op, which provided Vancouverites with reasonably priced and ethically sourced outdoor gear for decades before it lost it’s way. Similar organizations can form on the supplier side as well, such as the privately run Ontario Food Terminal which sees over a million trucks of fresh produce through it’s gates annually.
When you have one platform representing both sides, there is an inherent conflict of interest, and the platform will drive down brand revenues and drive up food prices to capture more revenue. Cory Doctorow calls this the Amazon Tax, and claims it is as high as 50% regardless of whether you shop on Amazon or not. This relationship is further confused when retailers start offering their own brands to compete with independent brands. I strongly suspect that this lack of an ecosystem of independent operators is what is driving food inflation in Canada. This isn’t the fault of the platform, they are in business to make money, and the less they pay for their product and the more they can sell it to you, the more profit they make. But as consumers, we have the responsibility to understand the business models of where we shop, and we have agency on how we choose to spend our money. If we are not satisfied with value we are getting from our big three Canadian food retailers, we have options. Shop with knowledge and intent.