Independents want more protection amid industry consolidation

Independent grocers are worried that the Competition Bureau’s handling of recent grocery-industry consolidation isn’t doing enough to protect them from the country’s biggest retailers.

That seemed to be the consensus following a speech by John Pecman, Competition Bureau commissioner, at Grocery Showcase West in Vancouver on Monday.

READ: John Pecman's full speech here

Pecman spoke about both the takeover of Canada Safeway by Sobeys last fall and the buyout of Shoppers Drug Mart by Loblaw. The Competition Bureau approved both deals.

Pecman told the audience (which included many independent grocers) that the Loblaw-Shoppers deal in particular was difficult to assess. Sobeys simply took over another grocery chain, but “six different product segments” had to be examined in the Loblaw-Shoppers deal.

But he said that the Competition Bureau has put in place protection for the small- and medium-sized vendors. Suppliers who do less than $4 million a year with Loblaw will be given some price protection for the next two years.

“We felt that was important to ensure competitive forces remain,” Pecman said.

Pecman added that during analysis of the Loblaw-Shoppers deal, the Competition Bureau become aware of  “certain conduct by Loblaw with respect to its suppliers that could raise concerns under the Competition Act.”

“The Bureau is looking at these supplier practices and the impact that they could have on competition in the marketplace,” he said.

Pecman declined to offer any further comment on which Loblaw practices the bureau is specifically looking at. But he did say the Competition Bureau hopes to hear from “individuals or organizations with information on these practices to share them with the bureau."

Late last month, the bureau OK'd Loblaw's takeover of Shoppers. Part of the approval included the sale of 18 retail stores (mostly Shoppers Drug Marts) and the sale of nine pharmacies within a Loblaw store to an independent operator.

The Competition  Bureau also set up what it called “behavioural restrictions” of up to five years on how Loblaw deals with suppliers in some situations.

No such restrictions were placed on Sobeys’ takeover of Canada Safeway. The company was ordered to sell 23 stores. It ended up selling 30 stores, 15 of which were picked up by B.C.-based Overwaitea and 14 by Saskatchewan-based Federated Co-operatives.

Pecman said he believes the deal that the Competition Bureau made with Loblaw “addresses the most significant negative competitive effects arising from the merger and that it will ensure that consumers continue to benefit from competitive prices in the retail sale of drugstore and pharmacy products in Canada.”

READ: With "behavioural restrictions" Loblaw gets OK to buy Shoppers

Later, Pecman was asked about demands for a grocery industry code of conduct. Such a code, already established in Britain and Australia, would limit the power that big grocers like Loblaw, Sobeys, Walmart and Metro have over their suppliers.

Pecman said it is up to the grocery industry to convince policy makers that a code is necessary. “The Competition Act does not provide the bureau with the authority to seek an enforceable code of conduct,” he said.

Some think the industry could do with a voluntary code of conduct. However, Pecman said a voluntary code wouldn’t give the Competition Bureau any teeth to make sure retailers and suppliers play nice.

Also at GSW on Monday, a retailers-supplier panel was held, moderated by Tom Barlow, CEO of the Canadian Federation of Independent Grocers. Panelists included: Tom Gunter of ConAgra; Allan Cosman of Ferrero Canada; Gary Sorenson of H.Y. Louie; and Ken Schley of Quality Foods.

Not surprisingly, Pecman’s earlier comments about competition became a big part of the panel’s heated and lively discussion.

Independent retailers on the panel said they're unable to meet demands of suppliers in comparison to the Big 4 grocers (Loblaw, Sobeys, Metro and Walmart).

Ken Schley, president of Quality Foods, a grocer on Vancouver Island, said suppliers wouldn’t allow him to sell their products at lower prices than Loblaw's No Name private-label products.

"Let the retailers retail, and the manufacturers manufacture," he said. "We can't take your product and compete with No Name "

Cosman of Ferrero Canada said suppliers don't want to compete with private label on price because manufacturers want to protect their brand equity. "For me, retailers need to manage their profitability," he said.

READ: Industry groups call for a code of conduct

The panel was also asked if they believe Canada needs a grocery industry code of conduct.

Both Sorenson and Schley said they don't want government intervention. All four panelists said the industry needs to find a way to get back to sustainable sales growth. "Grocers are brilliant at giving it away," said Sorenson.

To make his point, Sorenson cited the upcoming Easter promos in which grocers, he said, will undoubtedly offer big deals and practically give away for free the turkey and side dishes just to get the customer in the door.

Suppliers like ConAgra are facing pricing challenges as well. Gunter said his company doesn't bring out as many new products now because of listing fees and the cost of bringing these products to market.

The market today, he surmised, seems interested in immediate gratification on a product. He cited one ConAgra product that had been sold 40% on feature. Today’s it’s sold at 80%.