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Loblaw-Shoppers deal bad for business, say independents

Groups representing smaller retailers saying mass consolidation is bad news for consumers and smaller businesses

With the Competition Bureau pondering the proposed takeover of Shoppers Drug Mart by Loblaw Cos., independent retailers have come out against the $12.4-billion deal, calling it bad for both business and consumers.

“Any time you get consolidation of this size it’s bad for the industry,” said Tom Barlow, president and CEO of the Canadian Federation of Independent Grocers (CFIG).

VOTE: Is the wave of consolidation in the Canadian grocery industry good for business?

According to the CFIG, major chains currently control an estimated 79% of the Canadian grocery industry. If the Competition Bureau approves the merger between the country’s No. 1 grocer and No. 1 drug store chain, that number would be closer to 90%, he said.

Barlow said that while the Harper government is striving to ensure competition in sectors like wireless and financial services, consumers have far less choice when it comes to their food.

“You really don’t get a choice when you’re purchasing groceries, and we believe that mass consolidation is going to have a negative impact on consumers in the long term,” he said.

Barlow said that efficiency in the marketplace is too often superseding all other factors, meaning that the contribution of small and medium-size businesses tends to be overlooked.

READ: Convenience stores drowning in regulations, says new report

“We understand that Canada is a big market and we don’t have a whole lot of people and efficiency needs to be part of the formula, but we don’t believe it should override everything else,” said Barlow. “If that’s the case, we’ll end up with one large grocery chain and a few suppliers.”

He also said there needs to be a mechanism that would monitor large chains to determine if they are engaged in predatory pricing practices or restricting smaller chains’ access to goods and services.

“We need to take a step back and take a long-term look at what they want the state of grocery to be in Canada,” he added.

Alex Scholten, president of the Canadian Convenience Stores Association (CCSA) representing approximately 23,000 convenience store operators across the country, said “channel blurring” is one of the biggest threats to his members.

“If you go into any supermarket these days you’re seeing more single-serve products–both on the shelves and at the cash register,” said Scholten. “Those are traditionally C-store items, but you’re starting to see more and more of them in other retail outlets.”

Net profit for the convenience store industry has declined precipitously, from a $1 billion profit in 2011 to a loss of $254 million in 2012.

Scholten said the decline is attributable to a variety of factors, such as credit card fees, contraband tobacco and over-regulation, but noted that “channel blur” is a key contributor.

READ: The rebirth of convenience stores, smaller format grocers

Independent grocers are also feeling the pinch, said Barlow. The number of independent and franchised grocers in Canada has slipped from 15,000 in 2001 to just over 11,000 today.

Scholten said that the biggest asset for CCSA’s 23,000 member stores is their presence in local communities and their ability to create a quick and easy shopping experience for today’s time-starved customers.

A typical convenience store transaction can be completed in the time it takes a customer to find a parking spot at a major grocery chain, he said.

Loblaw's takeover of Shoppers Drug Mart is one of two blockbuster deals the industry has witnessed in the last six months. The other one, Sobeys' purchase of Canada Safeway, was approved by the Competition Bureau last week.

READ: Sobeys to sell 23 stores in Safeway deal

To get the Competition Bureau's blessing, Sobeys is supposed to sell 23 stores in Western Canada.

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