Manulife Financial Corp. has walked back its decision to sign an exclusive agreement with Loblaw Cos. Ltd after public backlash.Cole Burston/The Canadian Press
It was the type of thing big businesses in Canada has been too comfortable saying for too long: less competition is better.
In mid-January, Manulife announced that most people who buy expensive specialty drugs through the insurer could only do so at Loblaw pharmacies, which include Shoppers Drug Mart. Manulife claimed it was for “the benefit” of customers.
This garnered little notice until late January, when media reports raised questions. It doesn’t take an expert in competition law to see problems when one of the few large insurers tells you it is fact a good thing that life-sustaining drugs would be delivered by a “single service provider.”
Yet this wasn’t an accidental misstep. Insurance and pharmacies are two of many areas of the economy dominated by a small number of big names, and the overly weak Competition Act had no specific prohibition against such arrangements.
This time, however, there was blowback – alongside the prospect of the agreement falling on the wrong side of a recently strengthened Competition Act.
Experts called it an example of large companies “exercising market power” and squeezing smaller competitors. The Competition Bureau, which in the past would have had little to say publicly, talked of “restrictive trade practices” and the need for “increased industry scrutiny by investigating allegations of wrongdoing” in health care.
The federal Liberals, who have led an overhaul of the Competition Act, backed by the Conservatives and NDP, said Manulife and Loblaw didn’t seem to get the message that “we want more competition.”
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A pending legal change appears to also have been a factor. The House of Commons in December unanimously passed a slate of amendments to the rules that govern competition. Among them was the ability for the bureau to assess whether deals between companies that don’t directly compete may in fact be anticompetitive.
On Monday, Manulife scrapped its plans. After saying less choice would benefit customers, Manulife suddenly decided more choice would be better for its customers. (They are right.)
In December, this space celebrated the ongoing changes to the Competition Act. We argued that business in Canada is too stolid and the renewed competition law would help light a fire. The key next step was the put the tools to work – and change the culture.
Deals such as Manulife-Loblaw have gone from unremarkable to unacceptable.
The work of changing the culture is ongoing. Manulife’s reversal is a win. But look at wine in Western Canada.
The wholesale liquor monopoly in Alberta in late January said it wouldn’t buy specific wines from British Columbia if B.C. vintners sold directly to Albertans. This gross exercise of monopoly power may be protected by a flawed 2018 Supreme Court ruling that found laws that prevent interprovincial competition are constitutional as long as that is an “incidental effect.” As this space wrote six years ago: there are “too many interests in every province hard at work keeping their corner of the country safe from competition.”
In groceries, Ottawa a month ago asked the bureau to take another look at the industry. Last year, under the old Competition Act that limited the bureau’s purview, a study of grocers suffered because of a lack of co-operation from the companies. December’s legal changes bolstered the bureau’s powers and a second look at the industry – including issues among suppliers and others in the food industry – could produce more valuable results. Similar work in the United Kingdom last year found that many popular brands have increased profit margins.
Banking also merits a closer look, after Ottawa approved the Royal Bank takeover of HSBC Bank Canada with conditions. Ottawa is consulting on improving competition in a sector that looks more like an oligopoly than a dynamically competitive industry. Among the questions are potential measures to support upstarts that could disrupt the industry.
The new and pending changes to the Competition Act are essential. Just as important is changing the culture of business in Canada. The blowback to an anti-competitive deal is good news and bodes well for a new era where greater competition is at the fore of everyone’s thinking.