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The Loblaws store located at Church St. and Carlton St. in Toronto, photographed on Nov. 15, 2017.

Fred Lum/The Globe and Mail

An investigation of "abuse of dominance" allegations against Loblaw Cos. Ltd. that stretched almost four years has been dropped by the Competition Bureau because of insufficient evidence.

The bureau was probing whether Loblaw's policies for suppliers were hurting competition in Canada.

In March, 2014, after the Competition Bureau approved Loblaw's $12.4-billion takeover of Shoppers Drug Mart Corp., the federal agency started its look at Loblaw strategies that may have been used to stifle competition. In January, 2016, Loblaw voluntarily stopped some of the policies under investigation.

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The Competition Bureau pressed on but struggled to gather evidence. Suppliers were reluctant to provide information, for fear there would be retaliation from Loblaw. The investigation was supposed to take two years and instead lasted nearly four, as the bureau had to go to Federal Court to seek evidence from suppliers.

Despite the challenge to gather evidence, the Competition Bureau was able to get its hands on "the full body of evidence to make the right call," said Anthony Durocher, deputy commissioner of monopolistic practices, in an interview.

He called the investigation a priority for the bureau but did not disclose costs or the number of people involved.

The central concern was the state of competition in the grocery business, which is controlled by only a few large retailers – the result of industry consolidation. Profit margins for all companies involved are slim. For grocers, competition for customers is fierce. Suppliers feel squeezed and worry that they have no choice but to accept the tough terms issued by Loblaw and its peers. Meanwhile, independent grocers are trampled and argue that the potential disappearance of small players is a big loss for consumers.

Critics say the end of the bureau's Loblaw investigation does not suddenly signal a healthy industry.

"We don't want people to think, 'Oh, everything's fine.' There are still systemic problems," said Gary Sands, senior vice-president of the Canadian Federation of Independent Grocers.

Mr. Sands pointed to a new charge Loblaw plans to levy on its suppliers, one that will ripple through the industry. Small grocers will, in turn, be pinched by the squeezed suppliers. It's another blow to independents who offer choice and colour in Canadian neighbourhoods, he added.

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One example of the challenges Mr. Sands cited is the experience of an independent grocer in Ontario that operates one store.

The grocer was just informed by Ferrero Canada Ltd. that the Canadian arm of the global chocolatier will no longer deal with small independents and instead focus on the large corporate grocers.

"It's not just bad for us, it's bad for everyone," Mr. Sands said.

Loblaw, meanwhile, welcomed the end of the investigation into abuse of dominance.

"We have been an open book," Loblaw spokesman Kevin Groh said in a statement. "We have used the process to better understand the bureau's concerns and observations, and have simplified the way we conduct our business with suppliers."

The Competition Bureau, as it concluded its case, chose to issue an unusually lengthy and detailed statement about its investigation and outlined "guidance to the industry."

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"The line between hard bargaining and anti-competitive conduct is a fine one and firms should be careful not to cross it," John Pecman, commissioner of competition, said in a news release.

The bureau decided to provide more information than usual because of the many issues and companies involved and the importance of the grocery business to Canadians, Mr. Durocher added in an interview.

"We felt we made the right decision," he said, defending the years-long investigation that ended without further action. "That's the nature of competition work. You investigate issues and companies and assess the facts and the evidence."

The bureau noted that while it has concluded its Loblaw case, the decision does not affect its new criminal investigation into alleged price-fixing of packaged breads. This case has attracted considerable attention and now will receive added focus after the Loblaw case fell short.

The industry guidance in the Loblaw case from the Competition Bureau is significant for all retailers, said Michael Osborne, a competition-law expert and partner at Affleck Greene McMurtry LLP.

Market-dominance cases generally focus on situations in which there is one dominant company using its might to undue advantage when selling to consumers. In the Loblaw case, it was about a large company buying from suppliers – where the consumer is not immediately and obviously touched by the questions at play, Mr. Osborne said.

Consumer choice is being reduced, said Marion Chan, principal at grocery adviser TrendSpotter Consulting. With Canada being a small market, suppliers may choose to forgo selling products here, she added.

Ms. Chan and others in the industry are also not surprised the Competition Bureau found it difficult to gather evidence, as suppliers did not want to risk their relationship with Loblaw. Mr. Pecman, the Competition Bureau boss, last year spoke about the spectre of "retaliation."

"It was almost a losing proposition from the beginning," Ms. Chan said of the Loblaw case.

Michael Graydon, chief executive of suppliers group Food & Consumer Products of Canada, said: "If you've got 50 per cent of your revenue coming from one retailer, it's difficult to throw them under the bus."

One recent positive note is an emerging sense of partnership between new leadership at Sobeys Inc. and suppliers, Mr. Graydon said.

"It's very different than the aggressiveness of some of the other retailers we have to deal with," he said.

The independent grocers and the suppliers group both want some sort of agreement on business practices for all companies in the business. There are such codes of conduct in Britain and Australia.

Mr. Graydon also pointed to other issues in the industry, such as grocers losing market share to restaurants as young people eat out more often than earlier generations – a problem for all grocers and their suppliers.

"We need co-operation," he said.

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