A Loblaws store in Toronto, on May 2, 2013.Aaron Vincent Elkaim/The Canadian Press
Loblaw’s L-T recent move to reduce discounts on last-day sale items is a normal practice in the industry, not a sign of collusion, according to an expert in Canadian competition.
“Retailers are always following each other,” said Michael Osborne, the chair of the Canadian competition practice at law firm Cozen O’Connor.
“It’s perfectly lawful to observe the prices that your competitor is charging, to observe the discounts that they have, and to just follow suit on your own.”
His comments came after NDP MP Alistair MacGregor asked the competition commissioner to investigate a recent change in discount practices at Canada’s largest retailer.
News broke this week that Loblaw would no longer offer discounts of up to 50 per cent on items nearing expiry, instead marking them down by 30 per cent across the board.
Loblaw previously offered between 30 and 50 per cent off on last-day sale items, spokeswoman Catherine Thomas said in a statement Monday. It now offers 30 per cent off across the board to be more predictable and consistent, she said.
In a letter to the competition commissioner Tuesday, Mr. MacGregor called for an investigation into potential anti-competitive practices in the grocery industry.
Mr. MacGregor said that comments by Loblaw indicated they changed their discount to align with their competitors, and that this was cause for suspicion.
“Such co-ordination raises suspicions of possible collusion or anti-competitive business practices within the Canadian grocery retail sector,” he wrote.
“I kindly request that the Competition Bureau undertake a thorough investigation into the pricing strategies employed by major grocery retailers, with a specific focus on the recent decisions made by Loblaw.”
However, it’s common practice for retailers to visit each other’s stores to stay up to date on what their competition is doing, and make changes as a result, said Mr. Osborne.
“So they notice this and they say, ‘Hey, we’re leaving money on the table. So we’re going to do it too,’” he said.
“There’s nothing wrong with that, provided that they’re not in cahoots.”
By “cahoots,” Mr. Osborne means collusion – which he said is not the same thing as lawfully matching observed prices or discounts.
It’s a criminal offence to agree on prices with competitors, he said, “whether that’s how much you charge for a loaf of bread, or how much you discount that loaf of bread when it’s getting close to the sell-by date.”
“They can decide to follow the leader, but so long as they do it on their own without an agreement, there’s no problem.”
Metro MRU-T said on Tuesday that it has been marking down foods nearing their expiry date by up to 30 per cent for more than two decades.
Loblaw’s shift to 30 per cent is in line with its competitors, said J.C. Williams Group retail analyst Lisa Hutcheson on Tuesday.
Demand for discounted food items has gone up, she said, giving the grocers more room to sell those items for a smaller discount.
“What drives markdowns for retailers is whether it’s selling or not selling,” she said.
Grocers, and retailers in general, determine prices based on a variety of factors including input and operational costs, said Retail Council of Canada spokeswoman Michelle Wasylyshen.
“That doesn’t mean that they need to be oblivious to what competitors are doing in the market,” she said. “The concern from a competition standpoint would be if they came together to discuss pricing, and that didn’t happen here.”
The uproar over last-day sale items comes as the major grocers are under intense scrutiny from customers and politicians alike. The government has been leaning on grocers to stabilize food prices, while shoppers have been increasingly flocking to discount stores in a bid to mitigate food inflation.
In part because of the brighter-than-usual spotlight on grocers, Mr. Osborne said he’s dubious that the discount change is a symptom of conspiracy.
“They know that people are watching them,” he said.
“The odds are, unless they’re stupid, that they’re squeaky clean on this.”
However, Mr. Osborne noted that collusion is very difficult to detect, and usually doesn’t come to light without a whistle-blower or a conspirator coming forward, like Loblaw and Weston Foods did with the bread-price-fixing conspiracy.
The Competition Bureau will take the NDP’s letter seriously and likely “make some phone calls,” he said, but a formal investigation is unlikely.
With files from Ritika Dubey.