The federal Competition Bureau has secured a court order forcing Loblaw Cos. Ltd. to produce a raft of internal documents to determine whether the grocer pushed its suppliers into giving it attractive deals in ways that could be anti-competitive.
Justice Simon Noel of Federal Court ordered Loblaw, the country's largest grocer, to hand over documents about its extensive set of rules on pricing and competitive practices dating back to the beginning of 2011.
The order, which was made last month, is part of the bureau's broader inquiry into Loblaw's dealings with its suppliers. It is investigating the grocer's "alleged anti-competitive conduct to substantially lessen or prevent competition in one or more markets related to the purchase, supply and sale of grocery products in Canada," the order says.
The probe followed the bureau's approval of Loblaw's $12.4-billion takeover of Shoppers Drug Mart Corp., the country's top drugstore chain, in early 2014.
The investigation highlights an intensifying food fight as the big players get bigger, putting pressure on suppliers to give them breaks and sometimes making it tougher for smaller rivals.
Loblaw spokesman Kevin Groh said the order "is an expected step in the review commenced by the Bureau more than a year ago.
"We are working diligently to respond to the order," he said in an e-mail. "Our continued co-operation will ensure that we are not only in line with the Bureau's objectives, but that we continue to give Canadians compelling value."
The bureau gave Loblaw the green light in March, 2014, to acquire Shoppers but, at the same time, required it to sell some stores and restrict its dealings with certain suppliers to help prevent them and retail rivals from getting squeezed in an increasingly consolidated market. And the bureau said it would continue to probe issues of concern about Loblaw's pricing and other practices with its suppliers.
Bureau spokesman Greg Scott said the investigation is ongoing but confidential. "There is no conclusion of wrongdoing by Loblaw at this time" and no filing of an application with the Competition Tribunal or a court "to seek remedies for any alleged anti-competitive conduct."
In December, the bureau obtained 12 court orders requiring some key Loblaw suppliers, including Danone Inc., S.C. Johnson & Son Ltd. and General Mills Canada Corp., to hand over to the agency documents about their dealings with the grocer. None of the suppliers face any allegations of wrongdoing, Mr. Scott said.
The latest order targets a wide range of records, including those tied to company policies that deal with threats or decisions to "delist" – or drop – major suppliers' products or cancel scheduled promotions, the court document says.
It is looking for internal Loblaw reports on such matters as:
- Demands that suppliers pay fines for failing to deliver merchandise on time, or correctly;
- Requiring “listing fees” for suppliers to get their products on store shelves;
- “Profitability protection demands” for compensation from Loblaw’s 100 top branded suppliers if, during a specified period, Loblaw’s profit from the suppliers’ products falls below a specified threshold or projection;
- A “price freeze” in which Loblaw refused to accept cost increases from suppliers (except government-initiated or commodity cost increases) between October, 2012, and December, 2013.
- An “ad match” entailing demands for compensation from suppliers when a rival retailer offers a lower price on the suppliers’ items;
- An “ad collision” that entails demands for compensation from suppliers when Loblaw has identified a product in a rival retailer’s flyer that is promoted at a lower price than the same item advertised in Loblaw’s flyer at the same time.
Loblaw also has to produce an Aug. 26, 2013, e-mail entitled "Costco master document" and reports linked to its application of its 2014 "three strike policy." It is believed to be tied to penalizing suppliers that broke Loblaw's rules three times. And it has to report its "trade spend," or how much it collected from suppliers for its various policies, such as prominently displaying a discounted product.
Wendy Evans of retail specialist Evans & Co. Consultants said the grocery industry has become hyper-competitive and Loblaw is not the only player to become more aggressive.
Sobeys Inc., the country's second largest grocer, which took over Safeway Canada in late 2013, touched off a storm soon after when it demanded retroactive price cuts from suppliers and a price freeze for 2014.
The bureau inquiry is "long overdue," said Ms. Evans, who does research for independent and franchised grocers. "It's one of these insidious things that is very difficult to prove unless you're right inside the company."
She said the concerns underscore some industry groups' call on Ottawa to introduce a code of conduct to guide retailers and suppliers.
Loblaw's efforts to get breaks from suppliers can help it reduce prices for consumers. But the practices may result in higher prices if smaller retailers are charged more by suppliers to make up for low-margin deals with Loblaw, the bureau has suggested.