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Is Loblaws throwing its weight around too often?

Has consolidation driven up grocery prices for consumers?

The Competition Bureau has some questions for Loblaws.

 

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Canada’s Competition Bureau is trying to determine if Loblaw Companies Ltd. is using its buying power to browbeat suppliers and whether Canadians are paying more for groceries as a result. Steve Russell/Toronto Star

By: Francine Kopun Business reporter,

Published on Mon Jun 01 2015

Is Loblaw Companies Ltd. using its mighty buying power to browbeat suppliers and are Canadians paying more for groceries as a result?

That’s what the Competition Bureau is trying to determine, after ordering Loblaws to hand over reams of internal documents as part of an inquiry into how it deals with suppliers.

But the organization representing independent grocers in Canada says the problem is not limited to Loblaws – a majority of groceries in Canada are sold in stores belonging to two large, publicly traded companies: Loblaws and Empire Company Ltd., owners of Sobeys.

“This is not just a Loblaws issue. It’s indicative that we have an industry issue,” said Gary Sands, vice-president, Canadian Federation of Independent Grocers.

“We think this investigation underscores the need for a code of conduct in Canada to govern the grocery industry.”

In an affidavit filed in Federal Court, David Warford, a senior competition law officer with the Competition Bureau testified that some of the pricing protocols Loblaws asks suppliers to follow could result in higher wholesale prices paid by other retailers and, in some circumstances, higher retail prices for consumers.

“The Bureau also determined that, without restrictions, such programs and agreements would likely impact the incentives and conduct of suppliers to Loblaw, and the ability of other retailers to compete vigorously with Loblaw, particularly on price and product selection.”

Loblaws has been ordered by the Federal Court to turn over a vast amount of internal correspondence as part of the probe, including e-mails, calendars, appointment books, telephone logs, planners and diaries.

Central to the dispute are lengthy letters Loblaws sends to suppliers, outlining detailed pricing policies.

In a recent letter, Loblaws says suppliers selling products in “custom packaging” (for example bulk sizes) to one grocer must sell the products for the same price to Loblaws, even if the packaging is not bulk packaging.

Loblaws asks suppliers to bear a portion of the cost of ad-match – matching the lower price for a product at a competing store. Vendors that participate in a demonstration program at a competitor’s store must also participate in Loblaws demo programs.

But Loblaws is not the only major grocer bearing down on suppliers.

In a letter sent to all grocery suppliers dated Dec. 24, 2013, and signed by Dale MacDonald, senior vice-president, category management and national procurement, Sobeys suppliers were told to reduce prices following the acquisition of Canada Safeway.

“To support growing sales and to improve our internal productivity we expect to fully leverage our new consolidated scale. To accomplish this, we will require all suppliers to deliver a synergy savings rate of 1 per cent of cost of goods sold to Sobeys, incremental to current funding, effective November 3, 2013 onwards,” according to the letter.

Big grocers exacting concessions from suppliers is felt by independent grocers, said Sands.

Suppliers have to make up the money somewhere, and are more able to do so when dealing with smaller retailers who don’t have the buying power of a Loblaws, a Sobeys or a Metro.

While Sands said he doesn’t think it’s led to higher prices for consumers yet, he is convinced it could have an impact if left unchecked.

Sands said codes of conduct for the grocery industry have been enacted in the U.K. and Australia.

According to Warford’s affidavit, the inquiry was launched after certain Loblaw trade practices came to the competition commissioner’s attention during a review of the Loblaws acquisition of Shoppers Drug Mart Corp. in 2013 and 2014.

A Loblaws spokesperson said the company is working diligently to meet with the requests from the Competition Bureau.

 

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