Governments should not be opening grocery stores

If there has been an observable trend in recent decades, it is surely that of excessive intervention and a growing willingness of governments to try to replace markets. We have another fine example of this with the latest fashionable idea from the world of municipal politics, notably in Toronto and New York and taken up by the federal NDP: The creation of public grocery stores.

Some politicians even claim this could save Canadian families 30-40% on their grocery bills. Alas, nothing could be further from the truth.

First, let’s be clear: Grocery stores do not enjoy outsized profit margins. The industry norm is between 3-5%.

Even if those margins were eliminated, while maintaining efficiency, the savings for consumers would not exceed $11 to $18 per person per month, according to calculations from Toronto’s Daily Bread Food Bank.

For the purpose of comparison, a Canadian family of four spends, on average, $17,571 a year on groceries, or $370 per person per month, according to a University of Guelph study. We’re therefore very far from the 30-40% savings promised by some politicians.

To produce even those meagre $11 to $18 savings, however, government-run grocery stores would have to achieve a level of efficiency comparable to that of private grocers in supply negotiations and stock management. To imagine that this would happen is to engage in magical thinking.

Running a grocery store is no simple matter. It requires the coordination of thousands of perishable products through complex supply chains, all while negotiating hard with suppliers to keep slim margins from turning into losses.

Some politicians claim the creation of public grocery stores could save Canadian families 30-40% on their grocery bills. Alas, nothing could be further from the truth.

That leaves little room for error, and governments are simply not equipped to take this on.

And when things go wrong, which is far from unlikely, it is taxpayers who get stuck with the bill. Not to mention the legal risk — a single food safety incident in a city-run store could see the municipality dragged before the courts.

That’s why the record for these public initiatives tends to be disastrous. According to food economist Sylvain Charlebois, the failure or restructuring rate for government-run grocery initiatives in North America likely exceeds 50%.

Take the case of the Sun Fresh Market in Kansas City. This government-run grocery store received $29 million in public funds over its seven years of operation. It finally closed its doors last August, after having experienced empty shelves, financial losses and safety issues.

The real problem is that public grocery stores are aimed at the wrong target. The rapid increase in food prices is not due to grocers’ profits; rather, it is largely attributable to government policies.

One need only think of interprovincial trade barriers, which are equivalent to a 9% internal tariff, according to the International Monetary Fund. Then there are the taxes imposed all along the supply chain and transport costs, both of which contribute to raising the price of every product on the shelf.

If the goal is really to reduce Canadians’ grocery bills, the solution has been within the government’s power all along. It is not by playing grocer, but by reviewing the fiscal and regulatory environment that the various levels of government can help make food more affordable.

Such reforms would at least have the benefit of reducing prices across all grocery stores — for all consumers — and not just in a few subsidized stores.

Gabriel Giguère est analyste senior en politiques publiques à l’IEDM. Il signe ce texte à titre personnel.