Affidavit reveals glimpse into Loblaw pricing practices

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Loblaw Cos. Ltd. collected more than "tens of millions of dollars" from its suppliers last year for practices which, according to the Competition Bureau, could be anti-competitive and ultimately lead to higher prices.

The revelation is contained in an affidavit sworn in Federal Court that is part of the bureau's investigation into Loblaw's potential anti-competitive behaviour with its suppliers, forcing them to make up the difference to match retail rivals' lower prices.

"The terms, which appear to be used to protect Loblaw's retail margins, may raise its rivals' costs and increase the prices Canadian consumers pay for grocery products in Canada or have other non-price related effects on competition," David Warford, a senior competition law officer at the bureau, said in a sworn statement on March 26.

The affidavit, which was made to obtain a court order forcing Loblaw to provide the bureau with a wide array of internal documents, provides a rare glimpse into a web of practices that many retailers use to put pressure on their suppliers. In an increasingly consolidating market, big retailers are squeezing suppliers to get an edge as they take on even bigger global players.

The court granted the bureau the order in April as the federal agency determines whether the country's largest grocer pushed its suppliers into giving it attractive deals in ways that could be anti-competitive.

Loblaw spokesman Kevin Groh said the grocer "continues to fund the vast majority of improved prices. The fees paid by suppliers help us provide better value. In effect, the fees don't end up in our pockets, but in the pockets of Canadian consumers."

Mr. Groh said Loblaw remains "a proactive partner with the Competition Bureau in this review and, in consultation with them, have identified the documents and relationships that are relevant to the review."

The bureau's concerns were sparked during its probe into Loblaw's $12.4-billion takeover of Shoppers Drug Mart Corp., which the bureau approved in March, 2014. But at the same time, it imposed restrictions on Loblaw's dealings with some suppliers and said it would continue to probe the grocer because of concerns about its pricing and other practices with its vendors.

Loblaw has already spent about $5-million producing information and documents for the bureau's takeover review, according to the affidavit.

Loblaw convinced the bureau to limit the scope of both the documents the bureau was demanding and the employees whose material it wanted to include in the probe, the document shows.

Among the practices it is probing are:

• Its “active ad match policy,” in which Loblaw adjusts the price of a product in response to another retailer’s flyer and requires the supplier to compensate the grocer in “a margin-protection agreement.” The policy has been in place since the 1980s and applies to its Real Canadian Superstore and some Extra Foods stores in Western Canada.
• Its “cost increase policy,” in which Loblaw pays a wholesale price increase from a supplier but finds the market price generally unchanged, and bills or debits the supplier for an amount equal to the price increase on the assumption the supplier had not imposed its price increase on other retailers.
• Loblaw told the bureau that such compensation requests are “infrequent and affect a small number of suppliers,” the document says.
• Its “ad collision policy” in which Loblaw requests compensation from a supplier when the grocer has identified a product in another retailer’s flyer that is promoted at a lower price than the one in Loblaw’s flyer in the same period. It has been in place in some form since 2010.

The policy is applied infrequently and "the payments from suppliers to Loblaw are 'so immaterial' to Loblaw, that Loblaw does not track aggregate statistics of the policy," the document says.

Loblaw said that one or more of its policies have applied to about 120 of its thousands of suppliers in 2014, resulting in them paying the grocer amounts "exceeding tens of millions of dollars," the document says. The bureau countered that Loblaw's policies appear to apply to all of its more than 2,000 suppliers.

The bureau is looking into other demands Loblaw makes of its suppliers, including "listing fees" for shelf space for their products. Loblaw collected "tens of millions of dollars" in such fees in 2013, the document says. Loblaw may reduce listing fees, which are a common feature of the retail industry, or exempt some suppliers from paying them, it told the bureau.