Business

Loblaw treatment of its suppliers under scrutiny

The federal Competition Bureau is investigating the relationship between grocery giant Loblaw Companies Ltd. and a number of its suppliers in the wake of its takeover of Shoppers Drug Mart.

Earnings fall sharply at George Weston as Loblaw absorbs costs of Shoppers deal

Loblaw reported lower earnings today as a result of costs related to the merger with Shoppers Drug Mart. (Aaron Vincent Elkaim/Canadian Press)

The federal Competition Bureau is investigating the relationship between grocery giant Loblaw Companies Ltd. and a number of its suppliers in the wake of its takeover of Shoppers Drug Mart.

A spokesman for the regulator confirmed in an email Monday that the bureau is probing certain practices related to "pricing strategies and programs" by Loblaw with respect to its suppliers which "could raise concerns under the Competition Act."

"The bureau is looking at these practices and the impact that they could have on competition in the marketplace," spokesman Greg Scott said.

The probe comes as Loblaw parent George Weston is reporting increased revenue from the combined retailers, but falling profit because of costs of restructuring.

Profit from continuing operations reported Tuesday was $53 million or 30 cents per share, compared with $168 million or $1.21 per share a year ago. The year-ago figure included a $58 million boost from discontinued operations.

The addition of Shoppers Drug Mart helped boost revenue by 34.7 per cent to nearly $14 billion for the quarter compared with $10.4 billion a year ago.​

Competition Bureau restrictions

When the Competition Bureau approved Loblaw's acquisition of Shoppers Drug Mart earlier this year, it imposed certain "behavioural restrictions" on the grocer in connection with its agreements with suppliers for up to five years.

The bureau was concerned that without restrictions on certain programs and agreements, the deal would likely lead to higher wholesale prices paid by other retailers and, in some circumstances, higher prices for consumers.

The federal regulator also said at the time that it would continue to investigate certain pricing programs and agreements by the company.

Loblaw called the probe the latest step in that review.

The Competition Bureau has sent subpoenas to several Loblaw suppliers, asking for documentation on their arrangements with the big grocery chain. 

In the wake of the Shoppers purchase and with fierce competition in the grocery sector, there is pressure on Loblaw to find ways to trim its margins.

Loblaw's response

"Given it's the nation's largest-ever retail acquisition, we understand the bureau's interest in maintaining competition in the marketplace," Loblaw spokesman Kevin Groh said in a statement.

"We don't believe our commitment or practices are inconsistent with a competitive market. But, we continue to co-operate with the bureau and have worked to provide them the clarity they require."

Scott said Monday the bureau filed 12 applications with the Federal Court last week for orders that would require certain grocery suppliers to provide records and written returns of information to the bureau.

"It is important to note that there is no allegation of wrongdoing by any of these companies," he said.

"While I cannot discuss the specific details of our investigation for reasons of confidentiality, I can say that we are seeking information regarding pricing strategies and programs by Loblaw, with respect to its suppliers, which is relevant to our investigation," Scott said.

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