Protecting Competition in Canada’s Grocery Sector

From: Competition Bureau Canada

Grocery Innovations Canada 2020 – Canadian Federation of Independent Grocers

November 25, 2020

(As prepared for delivery)

Good afternoon, everyone. Thank you for the kind introduction, and thanks to the CFIG for inviting me to speak today. It is my pleasure to have the opportunity to talk to you about the role of competition enforcement in the grocery sector.

In the past year, Canadians have seen what all levels of the grocery sector are capable of in the face of a crisis. A simple glance at the statistics about how much Canadians spend on groceries every year, or the number of products available year-round, is a quick reminder of your work’s importance, and how essential it is to all Canadians.

Competition Drives Resilience and Adaptability

The pandemic has shown us the importance of low prices and consumer choice, and how critical it is to have resilient and adaptable supply chains that can react to large-scale disruptions, such as what we’ve experienced these past months. The pandemic has also reminded us about the unavoidably physical nature of how we put food on our tables, even as consumers dramatically accelerate their use of online grocery and delivery services. I’m certain that many Canadians, particularly those living in our major cities, had to think about the reality of food supply chains for the first time in many years. That we made it through this difficult period thus far without major disruptions speaks to both the impact of the pandemic and the strength of the response from all levels of the grocery supply chains.

Focusing on that resilience and adaptability, I believe competition has an important role to play. Just like the economy itself, a more diverse and competitive market can better react and adapt to unforeseen challenges. Open and competitive markets ensure that companies of all sizes can participate, succeed or fail on the merits of their work, creating an environment that rewards those who innovate and create value. When the Bureau enforces competition law in a strong and principled way, we protect and promote the competitive process, making Canada’s markets more resilient and adaptable.

Competition Law in Canada

It is worth a brief discussion about what competition law in Canada is and is not. We have recently seen a return of the debate over a code of conduct between suppliers and retailers in the grocery sector, similar to the codes of conduct found in the United Kingdom and Australia. The purpose of such codes is to address what many feel is an imbalance of power between large retailers and their suppliers, and to discourage unfair behaviour on the part of major retailers.

As it stands today, competition law in Canada focuses on conduct that could potentially dampen competitive intensity or thwart competition on the merits. Competition law in Canada does not regulate imbalances in bargaining power, and in its current role, the Bureau cannot develop or enforce a code of conduct for any industry. What the Bureau can do, however, is provide a procompetitive perspective to policy-makers at all levels of government, and we continue to do so, as needed.

Our enforcement work falls into four categories: addressing anticompetitive mergers, halting abusive conduct by dominant players, breaking up criminal cartels, and stopping deceptive marketing practices. The Bureau has pursued active enforcement in the grocery industry, most recently with our inquiry into Loblaw’s conduct with its suppliers, and our ongoing investigation into an alleged bread price-fixing cartel.

Competition law is rarely as black and white as it may seem on the surface, requiring the Bureau to navigate the grey areas present in every case. This means that for every case we take on, the Bureau must complete a thorough and complete examination of the facts relevant in Canada before concluding that there has been a contravention of the Competition Act.

Returning to imbalances of bargaining power, the line between hard bargaining and anticompetitive conduct is not always a bright one. The intent to reduce incentives to compete, such as a retailer passing on the costs of retail competition to suppliers, can push what some might see as simply hard bargaining by a large player into a violation of the Competition Act. When the Bureau investigates complaints raised by vigilant market participants, we always conduct a thorough investigation to ensure we can draw a clear line between vigorous competition and anticompetitive conduct.

Loblaw Investigation

Back in 2017, we discontinued an inquiry into allegations that Loblaw Companies engaged in conduct contrary to the abuse of dominance provisions of the Competition Act. The Bureau’s extensive inquiry into alleged anticompetitive policies enforced by Loblaw against its suppliers shows the importance of being ready to sort through the grey areas and draw that clear line. Our investigation covered several practices carrying allegations of anticompetitive intent. Although Loblaw ended a number of those practices during the inquiry, it was important for the Bureau to complete its investigation to confirm whether these practices met the standard for anticompetitive conduct. While the evidence did not sufficiently support the allegations, completing the inquiry was necessary to reach an informed conclusion and be fully transparent to the marketplace regarding our findings. That being said, we know that even in the same market, the facts may be very different in the future, and may warrant an inquiry.

Competitor Collaborations

Similarly, conduct that looks alike in principle can have dramatically different competitive effects in practice. This really matters when it comes to collaboration between competitors, which can range from procompetitive buying groups made up of smaller players, to full-blown criminal cartel behaviour, the most serious offence in Canadian competition law. This highlights the need for clarity and open communication on the appropriate bounds of collaboration in our ever-evolving marketplace. The Bureau took on that challenge earlier this year by issuing revised competitor collaboration guidelines for consultation and a statement on flexibility for collaborations during the pandemic. This statement, driven by our exceptional circumstances, recognized that the pandemic may call for the rapid establishment of business collaborations of limited duration and scope to ensure the supply of products and services that are critical to Canadians.

However, I would like to note the recent House of Commons industry committee’s interest in communications between certain competitors in the grocery industry regarding employee wages. In general, communications among competitors regarding employee wages would seem to be unrelated to an effective response to the pandemic and I heard of such discussions with concern. I want to take this opportunity both to reiterate that it is essential that all businesses remain cognizant of their obligations under the Competition Act and also to note that increasing collaboration amongst competitors carries a risk for businesses to continue down a slippery slope. Now more than ever, Canadians expect and deserve vigorous competition for their hard-earned money.

With this in mind, I want to re-affirm the Bureau’s commitment to protecting competition, especially in a market as vital as yours. We must all rally together during crisis, and we must continue to ensure that those with market power do not undermine the competitive process.

It is the Bureau’s responsibility to protect Canadians from anticompetitive practices, and you have my commitment that we will continue to work with all sectors to help us navigate the many challenges we’ve all experienced as a result the pandemic.

Thank you for having me, and I look forward to your questions.

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