Flaherty calls for clarity on higher prices in Canada

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As Canadian consumers seethe over paying higher prices here than in the U.S., retailers and the companies that supply them are passing the buck – to each other.

Retail chains such as Costco Wholesale Canada Ltd. blame their global suppliers for charging them higher prices in Canada that push up the retail prices on items such as soap and toothpaste as much as 30-per-cent higher than in the U.S.

The manufacturers, on the other hand, counter that major retailers charge them stocking fees for carrying their items – charges that are confidential but, they say, are steeper in Canada. And bilingual labelling and other regulations also force them to raise their wholesale rates here.

Finance Minister Jim Flaherty isn't sure who to blame, but the persistent gap in prices between consumer goods in the U.S. and Canada annoys him so much that this week he challenged businesses to explain their higher prices.

"Canadians are rightly irritated when they see large price discrepancies on the exact same products being sold on different sides of the border," the minister wrote to the Senate national finance committee, asking it to study the price differences this fall. "I share their irritation."

Cross-border sticker shock goes well beyond big-ticket automobiles and designer fashions. Prices of everyday staples such as detergent – made by global giants – can be up to 30-per-cent steeper here despite the loonie being above parity with the U.S. dollar.

Retailers that carry these low-cost consumer products haven't felt as much pressure to trim prices partly because the rates are rarely listed online, so consumers don't have an easy way to compare prices. And U.S.-Canada pricing surveys tend to overlook mundane packaged goods.

But with a growing public outcry about price gaps, companies of all stripes feel the heat to bring prices here more in line with those in the U.S., industry experts say.

"We are going to see more pressure, rightly or wrongly," said Jim Saunders, a practice leader at consultancy Pricing Solutions in Toronto.

Examples of price disparities have been piling up. U.S. fashion chain J. Crew launched its first store in Canada last month with prices 15-per-cent higher than those in its U.S. outlets – along with a steep tax on online purchases to cover higher duties. A week after its opening, the retailer was forced to backtrack and drop the online duty charge, which had added 10 to 20 per cent to the tab.

U.S. apparel retailer Abercrombie & Fitch raised the ire of some customers for displaying both the (higher) Canadian and (lower) U.S. prices on its tags. Weaker sales here have now prompted it to start showing just the domestic rates on new merchandise.

Amid the controversy, even items made in Canada by multinational companies – such as Ziploc bags – can be cheaper in the U.S. than in Canada. Other merchandise produced by global titans, including Procter & Gamble, Unilever, Nestlé and Kraft Foods, also are priced at a premium here.

"It's part of their pricing strategy," said Louise Wendling, who heads the Canadian division of U.S. discount bulk-selling retailer Costco Wholesale. "We've fought this a lot," she added, referring to Costco's reputation of offering competitive prices for its members who pay fees for the privilege of shopping its no-frills stores. "To their credit, they've brought it [prices]down slightly."

She said in an interview that packaged-goods companies insist on higher wholesale prices in Canada – an average of 10 to 20 per cent higher. Ms. Wendling, who is also vice-chair of the Retail Council of Canada, said she is working hard with multinational companies on lowering prices here. Other prices at Costco's Canadian outlets are at par or lower than those at its U.S. stores.

"Retailers add their normal markups on the cost of goods," she added in a follow-up e-mail. "The cost of goods must drop to reduce prices. Government, manufacturers and retailers will all have to work hand in hand, otherwise there will be increased cross-border shopping."

Officials at the packaged-goods giants didn't comment, or could not be reached. However, Nancy Croitoru, president of the Food & Consumer Products of Canada, said her members face a higher cost of doing business in Canada. "Manufacturers provide a suggested sale price, however the shelf prices Canadians pay are set by each retailer."

Canadian markets are smaller and more spread out, which leads to higher transportation costs, she said. Suppliers also have the extra expense of bilingual labelling requirements and regulations which call for different formulations or recipes here than in the U.S.

"Canadians enjoy some of the safest, most competitively priced, high-quality foods and consumer products in the world," she said in an e-mail. "It is difficult to compare consumer good prices in Canada and the U.S., as there are many factors that come into play. The markets are very different."

Mr. Saunders, the consultant, said that a company charges what a market will bear. "It's really about what the consumer is willing to pay." For example, some products are considered high-end in some markets and lower-end elsewhere.

But companies here can borrow a leaf from their European divisions and counterparts, which are being forced to bring their prices in different countries in line now that they're using a common currency.

Jeff Doucette knows all about price discrepancies here. As a Calgary-based consultant, he makes frequent business trips to the U.S., often picking up items for his infant daughter such as baby wipes at cheaper prices.

Mr. Doucette, a former Unilever official who now advises consumer-product companies, said he may save $25 on a bulk purchase, which isn't much in itself but "it gives you money to go out and buy sushi instead of wipes."

Still, he wasn't able to cash in on lower prices of infant formula on a recent holiday in Palm Springs, Calif., because the formula had a different recipe here, which his daughter didn't like.

Anger over price gaps bubbled over in Ottawa this week. The Senate national finance committee was already considering a study on cross-border rates before Mr. Flaherty expressed his irritation. But Liberal Senator Joseph Day, chairman of the committee, said he will meet Thursday with Conservative committee deputy chair Senator Irving Gerstein to discuss the minister's proposal.

"We'll obviously have to talk to manufacturers and people who set the prices in the U.S. – bring them here to talk to us or we'll go down and talk to them to them – just to see why this pricing is so out of whack," Mr. Day said.