Loblaw Cos. Ltd. will drop controversial supplier-pricing rules that are under investigation by the Competition Bureau in an effort to streamline its operations and smooth relations with vendors.
The country's largest grocer on Friday sent a letter to its 3,000 suppliers and provided a webcast outlining its plans to overhaul its pricing and cost practices with suppliers, according to people familiar with the situation. Loblaw's tactics have led to friction with suppliers and allegations that the company may be lessening competition by using heavy-handed terms, such as applying retroactive discounts on orders from vendors under certain circumstances.
Loblaw's new strategy is to eliminate an array of pricing policies with suppliers, introduce a single cost calculation and simplify the buying process with vendors in a bid to gain "cost certainty" and transparency.
"Suppliers have asked for this change," Grant Froese, Loblaw's chief operating officer, said in the letter issued Friday, obtained by The Globe and Mail.
Loblaw's supplier rules "are complex and inefficient, costing our respective organizations time and resources to administer," Mr. Froese said.
"They have created friction between us; and they do not align with our expectations of our respective roles. … This change will make working with Loblaw less complex, less adversarial and less costly."
The grocer will discontinue various pricing policies, starting Jan. 3. Internally dubbed such names as "active and passive ad-match bill backs" and "ad-collision bill backs," the policies, for example, force suppliers to match lower advertised prices at competing retailers.
The practices have been the focus of a Competition Bureau inquiry that was stepped up after Loblaw's $12.4-billion takeover of Shoppers Drug Mart Corp. in 2014.
Loblaw isn't alone among grocers in putting the heat on suppliers as it takes on big global giants, including discounter Wal-Mart Canada Corp. But now, Loblaw is looking for new ways to improve its relations with vendors and simplify operations in the brutal grocery battle.
"We are certainly pleased to see Loblaw reaching out proactively to the supply community and being transparent in their communications," Nancy Croitoru, president of the Food & Consumer Products of Canada, which represents suppliers, said in an e-mail.
"It is important that retailers and manufacturers work collaboratively to support the needs of Canadian consumers."
Loblaw's practices raised red flags at the bureau, which issued court orders for pricing information from a number of key Loblaw suppliers in late 2014. It subsequently secured a court order forcing Loblaw to produce a raft of internal documents to determine whether it had pushed its suppliers into giving it attractive deals in ways that could be anti-competitive.
Loblaw spokesman Kevin Groh said on Friday the current rules "are not anti-competitive. They are complex, costly and adversarial. This is part of a broader plan to be a simpler organization with better supplier relationships, where they focus on cost, we focus on price, and the customer benefits."
In his letter, Mr. Froese says Loblaw is launching improvements in how it works with its suppliers.
"We have been on a journey to become a more streamlined selling organization," the letter said. It refers to an array of efforts, including the adoption of SAP retail technology and cost savings tied to the Shoppers acquisition.
It outlines three initiatives currently under way, including one to create a single, company-wide cost model for its various divisions, and eventually Shoppers, "to achieve process simplicity and cost certainty."
It says the clarity of the supplier-retailer role "will be fundamental to simpler and more efficient negotiations. This clarity will ensure that we each focus on what we do best: You provide products at the best cost and Loblaw sells products to consumers at the best value."
It says it will negotiate the cost of goods based on volume and "our ability to provide value and competitive pricing to consumers. We will not discuss or negotiate our future retail pricing with you."