Competition Bureau drops civil probe of Loblaw over anti-competitive actions

TORONTO -- Canada's competition watchdog has closed a 3 1/2-year civil investigation into Loblaw Companies Ltd. related to allegations the grocery giant abused its dominant position in dealing with suppliers.

The Competition Bureau said Tuesday that after analyzing the impact of Loblaw's (TSX:L) supplier policies on competition, it concluded there wasn't sufficient evidence to support allegations that the company abused its dominant position.

Loblaw said the bureau's announcement on Tuesday was welcome news.

"We have been an open book and made significant contributions to the bureau's review. We have used the process to better understand the bureau's concerns and observations, and have simplified the way we conduct our business with suppliers," said spokesman Kevin Groh.

"We are continuing to introduce industry-leading compliance measures."

The civil investigation -- which the bureau said is separate from its criminal investigation into the grocery industry -- centred on whether Loblaw had influenced its suppliers' dealings with other retailers by seeking compensation when other retailers sold their products at lower prices.

The bureau said it identified several Loblaw policies that raised concerns but found no clear evidence that they had actually reduced competition with its rivals, resulting in its decision to end the civil probe.

But it wouldn't reveal much about how the closed investigation compared with its open criminal investigation into allegations of anti-competitive price-fixing.

"By law, the Bureau's investigations and inquiries are conducted confidentially. Therefore, I cannot comment further," bureau spokeswoman Marie-France Faucher said in an email.

Media reports have said the bureau's criminal price-fixing investigation is focused on the price of packaged bread.

However, food industry expert Sylvain Charlebois said he doesn't think the bureau will find any evidence to support the bread conspiracy theory.

"And if there is such a cartel, consumers are actually benefiting from it because prices are very soft and there's more variety at cheaper price," Charlebois said from Halifax, where he's dean of Dalhousie University's business school.

He said the criminal investigation of alleged price fixing was sparked by small, independent grocers that don't have the same clout as big competitors such as Loblaw, Metro Inc. (TSX:MRU) and the Sobeys chain owned by Empire Company Ltd. (TSX:EMP.A) -- which have all said they're co-operating with the Competition Bureau.

Charlebois said the earlier civil investigation into Loblaw alone was prompted by a group of suppliers, as a result of the grocery company's friendly takeover of Shoppers Drug Mart Corp.

The bureau said its 2014 civil investigation of Loblaw focused on nine policies that were discontinued or inactive since January 2016. It added that Loblaw introduced a different set of rules later in 2016, using a different approach with suppliers, and added it could revisit its decision to end the investigation if further information comes to its attention.

"The Bureau has gathered the facts and developed a deep understanding of the complex issues in the grocery industry: We have followed through on our commitment to conduct a thorough review," Commissioner of Competition John Pecman said Tuesday in a statement.

"The line between hard bargaining and anti-competitive conduct is a fine one and firms should be careful not to cross it. The position statement we issued today in connection to this civil investigation provides guidance to the grocery industry on how to stay onside of Canada's competition law."

Players in the Canadian grocery industry often charge suppliers various fees. Suppliers may pay listing fees, for example, to have their product stocked.

Earlier this month, Loblaw announced that its largest suppliers will have to pay a new handling fee. Suppliers using Loblaw's distribution centres will pay 0.79 per cent on the cost of goods they sell to the company, while those shipping directly to stores will pay 0.24 per cent.

Previously, Loblaw told suppliers in July 2016 that it would apply an automatic 1.45-per-cent price deduction on all shipments. It also said the grocer would reject any future cost increases from suppliers, unless they are related to higher input costs.