Independent Grocers Argue Antitrust Probe Disproportionately Favours Corporate Giants
Canada’s competition watchdog is investigating grocery pricing, saying negotiations between suppliers and retailers that set suggested limits on product discounts may prevent savings for shoppers.
But small grocers and industry experts say cracking down on such “minimum advertised pricing” policies, or MAP, would only help Canada’s retail giants.
The Competition Bureau announced Monday that it is researching whether the use of MAP – a dollar amount negotiated by suppliers and retailers that consumers might see in flyers and online apps – hampers competition in Canada’s grocery sector.
If retailers can’t advertise a better deal, “they’re less likely to offer prices that are lower than that minimum advertised price floor,” Jeanne Pratt, the bureau’s interim commissioner, said in an interview. “When lower prices can’t be advertised, shoppers have a lot more difficulty comparing prices and deciding where they’re going to shop.”
But industry watchers say eliminating minimum advertised pricing policies would largely benefit the handful of grocery chains that control the majority of the Canadian market.
Major grocers have most of the leverage in pricing negotiations with suppliers, given their scale and the volume of goods they purchase, said Gary Sands, vice-president of government relations of the Canadian Federation of Independent Grocers.
“The big guys will use power and leverage to push down the price on suppliers,” he said. “An independent grocer can’t do that, we don’t have that power.”
Scrapping MAP rules would put independents at an even further competitive disadvantage as they aren’t able to negotiate – and later publicize – the same discounts as grocery giants, Mr. Sands said. Even if this could momentarily lower prices for consumers, it could contribute to elimination of smaller players and, ultimately, less competition, he warned.
“It would be short-term gain for long-term pain,” Mr. Sands said.
Generally, when grocers offer promotions for certain items, the manufacturers contribute by also lowering the prices they charge the retailers for those products.
“A number of large retailers have been after these changes for years,” said Michael Graydon, chief executive officer of the industry group Food, Health & Consumer Products of Canada. “And it is really, I think, to ensure that they can charge the manufacturer for these significant reductions.”
To offer a discount below the minimum advertised price, he explained, retailers would have to take that out of their own profit margins.
“There isn’t this desire from the retailers to invest margin in pricing without the support of the manufacturing community,” Mr. Graydon said. Minimum pricing policies set a floor, below which the manufacturers will not subsidize further discounts, he added.
“One of the things MAP does is it provides at least a little bit of protection for complete collapse of margin within the manufacturing sector,” he said.
Manufacturers do have an incentive to keep prices from dropping too low.
“Manufacturing is just a small element of the cost of goods. There’s the research, the development and the marketing, and so much more,” said Henry Chambers, senior vice-president with Sentinel Management Consultants, a strategic advisory and commercial capability training firm that works with food suppliers around the world.
In some cases, suppliers who face too much pressure on prices must find ways to cut costs, which can affect product quality and new product development, among other consequences that do not benefit consumers, he said.
Minimum-pricing terms are sometimes written into product suppliers’ contracts with Canadian retailers, stipulating that they do not want stores to sell below a certain price on promotion. But retailers ultimately control the pricing on their shelves.
“It’s advisory,” rather than a cap on discounts, Mr. Chambers said.
Mr. Graydon said nothing about MAP prevents retailers from selling at a lower price.
“It’s presented like it’s an inhibitor to low pricing. No, those avenues of opportunity exist for the retailer if they wish to take it. It’s a matter of whether the manufacturer pays for that or not,” he said.
However, Matt Poirier, vice-president of federal government relations at the Retail Council of Canada, said the lowest advertised price is “a process and a conversation,” the outcome of which is negotiated by the supplier “at their behest.”
“We have to accept the price at the end of the day.”
Ms. Pratt, meanwhile, said the bureau’s goal is to improve affordability and emphasized that it is specifically looking at advertised prices rather than shelf prices.
But Mr. Sands said the two cannot be extricated from each other.
Mr. Graydon added that MAP maintains “balance within the industry.” If a retailer advertises a very aggressive promotion, he explained, it can lead to sales spikes that “suck inventory out of the system” and put independent grocers at a disadvantage in terms of their product supply.
If Canada’s largest retailers gain even more negotiating power, suppliers could cover lost revenue by charging higher prices to independent stores, Mr. Sands added – which could threaten their survival.
“Do we want to have an industry in Canada where there’s just five retail grocery chains and no independents? I don’t think so.”
This article was first reported by The Globe and Mail
