For years, Canadians have been told that food inflation is driven by weather, labour shortages, transportation costs, global conflicts, exchange rates, and climate events. All of those factors matter. But there is another contributor to rising food prices that rarely receives public attention: the way some grocery promotions are funded.
The Illusion of Savings
Consumers love promotions. A 10% discount advertised in a weekly flyer appears to be a win for everyone. Shoppers save money, retailers attract traffic, and manufacturers gain visibility. At least that’s the theory. The reality can be very different.
Consider a common practice known in the industry as forward buying. A retailer decides to feature a product at a 10% discount for one week. Instead of purchasing only the quantity needed for that promotional period, the retailer orders enough inventory to cover several months of sales while demanding the promotional discount on the entire purchase. The product is then sold at regular price for most of those months. The retailer enjoys the benefit of the discounted purchase long after the promotion has ended. Who pays for it? The manufacturer.
The Math Behind the Advertised Discount
What consumers often don’t realize is that promotional discounts are frequently calculated based on the retail shelf price, not the wholesale price paid to the supplier. Suppose a product sells for $10 at retail. A 10% promotion represents a $1 discount. If the manufacturer sells that product to the retailer for $4.65, that $1 deduction actually represents more than 21% of the manufacturer’s revenue on that item. In other words, what appears to be a modest 10% promotion for consumers can become a 20% or greater financial hit for the supplier. Manufacturers are not charities. Nor should they be expected to absorb losses indefinitely.
Why the Consumer Ultimately Loses
When these practices become widespread, suppliers have only a few options. They can accept shrinking margins, reduce investment in innovation, cut costs elsewhere, shrink package sizes, or increase prices. Most choose some combination of the latter two. The result is entirely predictable: consumers eventually face higher prices or smaller products.
This is why Ottawa’s latest review of competition in Canada’s food sector should look beyond concentration ratios and grocery market shares. Competition is not just about how many retailers operate in a market. It is also about how power is exercised within commercial relationships. A retailer does not need to own the entire market to exert significant influence over suppliers. Sometimes market power reveals itself through purchasing practices, promotional requirements, listing fees, penalties, and contractual arrangements that suppliers cannot realistically refuse.
Smaller Suppliers Also Lose
Smaller manufacturers are particularly vulnerable. A multinational food company may have the scale to negotiate better terms. A regional processor, family-owned food company, or emerging brand often does not. For them, losing access to a major retailer can be catastrophic. This is precisely why the Grocery Code of Conduct was created. The Code aims to promote transparency, fairness, and predictability in supplier-retailer relationships. It recognizes that power imbalances exist and that healthier commercial relationships ultimately benefit consumers.
But the Code alone cannot answer a larger question: How much are these practices costing Canadians? The Competition Bureau should investigate. Not because promotions are inherently anti-competitive, but because they may distort how costs are distributed across the food supply chain. If suppliers routinely raise prices to offset promotional demands, then practices designed to create the appearance of savings may be contributing to inflation over the long run.
Ironically, Canadians spend enormous amounts of time debating grocery profits while paying relatively little attention to the mechanics that shape prices before products ever reach store shelves. The food industry is notoriously secretive. Many suppliers are unwilling to speak publicly for fear of commercial repercussions. Yet if Ottawa genuinely wants to understand why food remains expensive in Canada, it needs to hear from those manufacturers behind closed doors. The answer may not be found in the checkout lane. It may be hiding in the promotion calendar.
– Sylvain Charlebois is director of the Agri-Food Analytics Lab at Dalhousie University, co-host of The Food Professor Podcast.
