😡 lob-lamentation
illusions
Lately Canadians have been lamenting Loblaw, but for the wrong reasons.
It was recently revealed in a rare House of Commons zinger that a primary advisor to federal Conservative leader Pierre Poilievre is also a registered lobbyist for the grocery giant Loblaw (specifically in the province of Ontario).
This revelation came as the public was grappling with the announcement that one of the country's largest insurance companies, Manulife (Canada’s largest insurance company) had struck an exclusive deal with Loblaw-owned Shoppers Drug Mart to provide specialty drugs. Many contested the logic of an arrangement referred to as ‘preferred pharmacy network’ (PPN) when it otherwise sounded like some sort of anti-competitive lock-in. The Canadian Anti-Monopoly project has suggested that it’s possible the deal would trigger section 90.1 of the Competition Act, which deals with agreements or arrangements that prevent or lessen competition unduly, and the arrangement has since been dissolved.
The resultant vibe was that Loblaw was undermining our choice. Why do we keep reading about how we have less competition, and the need to get more?
A report from the Competition Bureau last year confirmed - and substantiated - what was already well known: Canada’s grocery sector lacks competition. It is characterised by three domestic chains: Loblaw, Metro, and Empire (Sobeys) and two foreign players: Wal-Mart and Costco. These firms voluntarily complied with the Bureau’s study, but many have criticised the grocers for not being fully forthcoming about the composition of their business. Since the report was released, initial amendments to the Competition Act have been proposed. One of these grants the Competition Commissioner with market study powers - the ability to compel specific information from businesses. This means that if the Bureau conducted the study again today, it would be able to directly parse the accounts of the major grocers. Indeed, the Minister of Science, Innovation, and Economic Development has urged the Competition Bureau to conduct a followup study of grocery prices; likely motivated by the grocer’s reluctance to comply with the Minister’s request that they work creatively to stabilise food prices.
Still, social media was aflame; circulating price comparisons of food flyers from 2019 that contrasted the large price leaps that have occurred over the past five years. This general sense of fury expressed online prompted a Canadian economist to wonder out loud what the big deal was. After all, people can just shop at a Loblaw competitor.
But is this true? Can Canadians simply take their business elsewhere?
In assessing the vitality of various sectors, analysts have become somewhat obsessed with simply counting the number of competitors. The relationship is straightforward: less competitors means more concentration. But this superficial assessment fundamentally ignores how companies have changed over time, and the reality of how they behave.
Loblaw isn’t just a grocery company. It’s a company with diverse revenue streams that produce an ecosystem of financial assets. Loblaw is a landlord through its REIT. It offers bank-like financial services through PC Financial. It offers for-profit virtual healthcare through Maple and wants to move further into primary care in Alberta (pharmacy care clinics). It has a venture capital arm, as do many companies today, that invests in technologies that could benefit the company in e-commerce, healthcare, and food sectors. All this occurs in tandem with its impressive suite of private label products, and a loyalty program that drives consumer spend.
The Minister has shared that he is courting more competitors, such as German multinational Aldi. Even if such a firm were to set up shop here, it would only compete with Loblaw in one regard: food. The “bring a foreign competitor to market” narrative simplifies a more complex picture – pitting a Canadian conglomerate against a dominant and fast-growing multinational grocer.
Less glamorous than courting another company but with high potential is the clumsy policy progress being made on the prospective grocery code of conduct, which will bring transparency to the agri-food supply chain and help us understand where and when price markups from suppliers are being passed onto consumers. Of course, the public shouldn’t give a free pass to food manufacturers passing on price increases or shrinkflation. But without the data, people default to reflecting their resentment to the supermarket itself.
👻 If people are looking for a place to redirect their annoyance and helplessness, they should be haunted by Kleenex exiting Canada last year. A company that is ~literally~ synonymous with tissues decided that the cost of competing in this country wasn’t worth it. But a closer look suggests that the firm was aggressively price disciplined by competitors’ private label tissue offerings, like Costo’s Kirkland brand, Wal-Mart’s Great Value or Loblaw’s No Name or President’s Choice brands. The big ‘grocers’ may have chased the eponymous firm away.
The big grocery stores have repeatedly insisted that their grocery business has small margins, and I believe them. But their ability to cross-subsidize their business lines, manipulate consumer behaviour through loyalty offers, and direct competition with their suppliers needs to be acknowledged when we seek to assess the terms of competition.
Canadians are still pushing politicians to do more for us to moderate the price of food. We found a ‘villain’ - Loblaw, Galen Weston - and are hoping for a hero - a new competitor with transformative competition powers - BUT Aldi and Trader Joe’s (*which is owned by Aldi) are just grocers - albeit with their own suite of private label brands.
We’re mistakenly framing this as a battle of global conglomerates and not retail grocers. Our regulatory and political regimes are not up to the task of meeting the complexity and the changes that are occurring in markets.
Expecting another grocery to come to Canada with the capacity to meaningfully compete [head on] with a firm like Loblaw is fantasy. We need to be more realistic about how these firms have evolved and how they compete if we expect new entrants to be able to go head to head. We need the competition conversation in Canada to make how markets and companies operate today.
Don’t forget data as a revenue stream. The different grocers in Canada all have varying cost and availability to data. Third party market data is monopolized by Nielsen. There is no other provider. That does provide a complete advantage to the private labels as they have much better access to data.
Really interesting, I had never thought of the issue like this before!