As Loblaw Companies Ltd. takes over Shoppers Drug Mart, the Federal Competition Bureau has put Canada’s largest food, health and home retailer under its microscope to investigate certain Loblaw practices concerning many of its suppliers.
Eight months ago Loblaw had received the ‘okay’ from the regulator to complete its acquisition of Shoppers Drug Mart Corp., worth $12.4bn. Along with the green signal it had also enforced "behavioural restrictions" up to five years on the grocery retailer, with respect to the agreements it had with suppliers.
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The regulator was of the opinion that without these restrictions other retailers would be paying higher wholesale prices, sometimes leading to consumers also paying higher.
In an e-mail from the Bureau on Monday, spokesman Greg Scott confirmed that the regulator was probing a few Loblaw "pricing strategies and programmes" regarding its suppliers, which "could raise concerns under the Competition Act".
"The bureau is looking at these practices and the impact that they could have on competition in the marketplace," Scott said. "It is important to note that there is no allegation of wrongdoing by any of these companies."
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The investigation comes at a time when Canada’s leading bakers George Weston, parent company of Loblaw, is showing plunging profits due to restructuring costs, though revenue from the combined retailers has improved.
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By GlobalDataLast year, operational profits were $168m or $1.21 per share (including a hike of $58m due to discontinued operations), when compared to this year’s $53m or 30 cents a share, as reported on Tuesday.
The Shoppers Drug Mart takeover has increased revenue to almost $14bn, a 34.7% boost, for the quarter, when compared to last year’s $10.4bn.
Twelve of Loblaw’s suppliers have been served subpoenas demanding arrangement documents with the retailer. Some of them are Danone Inc., General Mills Canada Corp., S.C. Johnson & Son Ltd., Reckitt Benckiser Canada Inc., Con-Agra Foods Canada Inc., and Ferrero Canada Ltd.
The federal Competition Bureau is asking for documents dating back to 2011.
Now, what with the takeover and intense competition in the $88bn grocery sector, Loblaw needs to seek out methods for trimming down margins.
Kevin Groh, spokesman for Loblaw, said: "Given it is the nation’s largest-ever retail acquisition, we understand the bureau’s interest in maintaining competition in the marketplace. In our relationship with suppliers, we are an active advocate for customers — providing Canadians with the best value possible.
"We don’t believe our commitment or practices are inconsistent with a competitive market. But, we continue to co-operate with the bureau and have worked to provide them the clarity they require."
Increased competition in Canada’s grocery sector with the addition of more discount retailers has resulted in the market being dominated by very few large retailers. Small grocers and suppliers feel that the demands of the grocery bigwigs for more payments would be thrust upon their shoulders.
"For us, this is connecting the dots between this issue and the consumer," said Gary Sands, vice-president of the Canadian Federation of Independent Grocers. "I would see that as a big win."
The Loblow and Drug Mart mega-merger hands over 90% industry control to big grocers; a 10% rise from the earlier 80%.
"Should evidence indicate that Loblaw, or any other party, has contravened the Competition Act, the Commissioner will take appropriate action," Scott added.
