Canada: Canada’s Competition Bureau Requires Divestitures And Limits On Supplier Contracts In Clearing Loblaw-Shoppers Merger

Approximately eight months after the announcement of Loblaw Companies Limited's proposed acquisition of Shoppers Drug Mart Corporation, the Competition Bureau (Bureau) concluded its review and reached a consent agreement with Loblaw to resolve certain concerns over the potential anti-competitive effect of the transaction.

According to the Bureau, the consent agreement will "preserve competition in the retail sale of pharmacy products and drugstore-type merchandise in Canada by requiring divestitures in 27 local markets and prohibiting Loblaw from engaging in specific conduct with suppliers." While store divestitures are not uncommon in retail mergers, it is noteworthy the Bureau imposed restrictions on the parties' contracting practices going forward in an effort to address the transaction's impact on suppliers.


On July 14, 2013, Loblaw and Shoppers entered into an agreement pursuant to which Loblaw proposed to acquire all of the outstanding common shares of Shoppers for a total purchase price of $12.4 billion. The combination of Loblaw (the country's largest food retailer) with Shoppers (the country's largest drugstore retailer) would have resulted in a retailer with approximately 2,738 stores and 1,824 pharmacies across Canada.

The Bureau's analysis

In its review of the transaction, the Bureau focused on assessing (1) the potential for Loblaw to exercise market power in its retail operations that could lead to substantially higher prices for consumers; and (2) the impact of Loblaw's market power with suppliers on competition and consumers.

Effects of the merger on consumers

In what the Bureau referred to as its "downstream investigation," it analyzed whether the acquisition of Shoppers would likely create, maintain or enhance Loblaw's market power by enabling it to sustain materially higher prices than those that would exist without the merger.

The first step in this analysis involved identifying the overlapping product categories of the two companies. The Bureau noted that both Loblaw and Shoppers sell prescription drugs, over-the-counter medications and behind-the-counter medications (collectively, the Pharmacy Products), as well as health and beauty aids and drugstore-type foods and cosmetics (collectively, the Drugstore-Type Merchandise).

The second stage of the downstream investigation involved defining the market in which Loblaw and Shoppers compete.

Based on extensive analysis, which included using geomatics software, interviewing market participants, consulting industry experts and examining the parties' internal documents, the Bureau concluded that consumers choose to fill their prescriptions or shop for Drugstore-Type Merchandise based on a number of factors, including convenience, the proximity of a store to their home, and the location of doctors and medical services. Accordingly, the Bureau held that the relevant geographic market for the retail sale of Pharmacy Products and Drugstore-Type Merchandise (collectively, the Overlapping Products) is local.

Local markets—a key consideration

Next, for each local market where the Overlapping Products are sold, the Bureau examined concentration levels using sales data from the parties and many of their major competitors. In addition, the Bureau looked at the extent and nature of effective remaining competition in each local market of concern, which was a key consideration in its analysis.

Based on the above analysis, the Bureau estimated the potential competitive effects resulting from the merger in each local market where the Overlapping Products are sold and, consequently, identified those markets of greatest concern. The Bureau concluded the proposed merger would result in a substantial lessening of competition in 27 local markets for the retail sale of the Overlapping Products. The Bureau also found that entry into these markets by new competitors would not be likely, timely or sufficient to counteract the merger's anti-competitive effects.

As a result, the Bureau entered into a consent agreement with Loblaw pursuant to which Loblaw agreed to sell nine of the pharmacies within its stores to independent operators and 18 of its stand-alone stores to third parties.

Effects of the merger on suppliers

Following the merger, Loblaw will be the largest purchaser in Canada for many of the Overlapping Products. Accordingly, the Bureau's review in this respect focused on the market power held by Loblaw with its suppliers post-merger and the resulting impact on competition.

In analyzing the competitive effects of the merger on suppliers, the Bureau interviewed numerous Loblaw and Shoppers suppliers, competing retailers, buying groups and industry associations. It also reviewed Loblaw's internal documentation with respect to its relationship and interactions with suppliers and obtained advice from economic and industry experts. In the end, the Bureau concluded that Loblaw could exercise market power, and in certain cases would have increased market power, in its dealings with suppliers after the merger.

Compensation for pre-determined profit margins

In its review, the Bureau identified certain agreements Loblaw has in place with suppliers that caused competition concerns in the context of the merger. In particular, the Bureau noted that certain agreements require suppliers to compensate Loblaw for a pre-determined profit margin, where the compensation is calculated using a prescribed method and referenced the advertised prices of competing retailers. The Bureau concluded that if these agreements were extended to product purchases for Shoppers' stores, a substantial lessening or prevention of competition would likely result that would lead to higher wholesale prices charged to the suppliers' other retailers and, in some circumstances, higher retail prices for consumers.

Based on the above conclusion, the Bureau required Loblaw to agree to certain behavioural restrictions in the consent agreement.

Specifically, the Bureau prohibited Loblaw from entering into agreements similar to the above with suppliers for Shoppers' stores for a period of five years from the closing of the proposed transaction. The consent agreement further restricted Loblaw, for five years, from seeking financial compensation from suppliers if the retail price of a product advertised in a competing retailer's flyer is lower than the price of the same product in a Loblaw flyer at the same time. Finally, Loblaw committed, for two years from closing, not to charge penalties related to short deliveries, not to charge new supply chain penalties and fees to suppliers that supply less than $4 million of products to Loblaw and not to require a reduction in the current cost of products from such small suppliers.

Recent press reports have noted the intensified competitive landscape in Canada's grocery industry, and the pressure being felt by suppliers as retailers seek to maintain margins despite offering lower retail prices. Certain grocery suppliers have turned to using minimum advertised pricing programs as a means to preserve their brand equity when faced with retailer discounting (additional details can be found in our recent article, Canadian food fight: producers combatting grocery discounts with minimum advertised pricing plans).

It is against this backdrop that the Bureau recently issued draft Price Maintenance Guidelines that explore when companies can engage in price maintenance behaviour, such as instituting a minimum advertised pricing program. It also explains why the Bureau stated in its press release announcing the Loblaw settlement that its Civil Matters Branch will continue to investigate Loblaw policies, agreements and conduct related to pricing programs with suppliers that reference rivals' prices.

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ('the Norton Rose Fulbright members') of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions