Public grocery stores won’t satisfy the hunger for lower food prices

Zohran Mamdani, the leading candidate in New York’s mayoral race, has created buzz with his promise to introduce city-owned grocery stores. Here in Canada, Avi Lewis, one of the most prominent candidates in the federal NDP leadership race, is also pitching the idea of a “public option for groceries.”

The candidates are tapping into deep frustration about grocery prices, which rose 27 per cent in Canada between 2020 and 2025. The idea of publicly run stores has popular appeal, with one survey showing that two-thirds of New Yorkers support the idea. But for shoppers searching for lower food prices, the proposals are likely to leave them hungry.

The concept, as Mr. Mamdani lays it out, is to put a municipally owned grocery store into each of New York’s five boroughs. Without the need for profit, the stores can offer lower prices, he says. They wouldn’t need to pay rent or property tax, and centralized purchasing and distribution would help keep costs low.

Mr. Lewis’s version would have the federal government negotiate with food distributors and provide retail spaces, which might be owned by municipalities. “This is a fantastically popular policy that I think we can win with,” he says. “When the market fails – any industry – the government actually has to step in and provide an alternative.”

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His dramatic description is out of step with the reality of Canada’s low-margin grocery industry. (A Competition Bureau study found room for improved competition in the industry, however, pointing to “modest yet meaningful” increases in margins from 2017 to 2022.)

Eliminating profits would only net minimal savings, as margins in the Canadian industry average around 3.5 per cent. (They’re 1 to 3 per cent in the U.S.) Putting in just five stores in New York, home to more than eight million people, wouldn’t be enough to impact prices in the overall market.

Would these government-run stores be models of efficiency, able to beat out Costco and Walmart on prices? It seems unlikely, particularly as both the NDP and Mr. Mamdani’s Democrats would feel pressure to employ unionized workers with benefits. Mr. Mamdani’s vow to partner with local neighbourhoods on products and sourcing could lead to buying from nearby small businesses, resulting in prices closer to the lofty highs of Whole Foods or your local farmers’ market.

If these public stores did manage to undercut the private sector, they could push New York’s small owner-operated bodegas and Canada’s remaining independent food sellers out of business, reducing competition. And because governments would pay some of the costs and lose out on property tax and rental income, the stores would effectively be a state subsidy to all shoppers, even ones who are wealthy.

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While this solution has little merit, governments should look for other ways to ease the pain of high grocery costs. Intense concentration in the food sector contributes to high prices, and it goes beyond the five grocery chains that control 75 per cent of the Canadian market. The markets for farm machinery, seeds, fertilizer and beef slaughterhouses are each dominated by a few powerful companies. A report from the Canadian Anti-Monopoly Project said that out of 27 mergers or acquisitions in the food supply chain reviewed by the Competition Bureau since 2001, not a single one was successfully blocked.

Supply management also jacks up the prices for dairy, poultry and eggs. Dismantling those systems would likely bring down costs on these essentials.

Recent changes to the Competition Act could help curb price increases. Anchor tenants such as grocery stores have traditionally used exclusive clauses in commercial leases and restrictive covenants to prevent other stores from selling food in the same retail complex. It’s now easier for the Competition Bureau to target companies using these practices. Other changes mean companies can face bigger financial penalties for anti-competitive conduct. In addition, the Bureau has more power now to stop mergers that stifle competition.

The Competition Bureau offered more solutions to bring down grocery prices in its 2023 market study report. Its recommendations include cutting grants and incentives to grocery giants, and easing barriers that could discourage international grocers from entering the Canadian market.

These policies might not get everyone talking on social media, but they would do more to address the real problem of high food prices.