The Competition Bureau announced yesterday that it had entered into a Consent Agreement (the “Agreement”) with Sobeys Inc. (“Sobeys”) regarding its acquisition of Canada Safeway Limited (“Safeway”). The Agreement requires the divestiture of 23 stores in Manitoba, Saskatchewan, Alberta, and British Columbia.
In June 2013, Sobeys announced that it would acquire Safeway assets for $5.8 billion. The deal initially included 213 grocery retail locations (including 199 in-store pharmacies and 62 co-located fuel stations), 10 liquor stores, 4 primary distribution centres (including the related wholesale business), and 12 food manufacturing facilities.
In its Position Statement, the Competition Bureau (the “Bureau”) outlined its analysis of the transaction and why it believed that the transaction would lead to a substantial lessening or prevention of competition in the retail sale of full-line grocery products in several local markets in Western Canada.
Some of the key conclusions reached by the Bureau include:
1. Focus on “Full-line Grocers”: The focus of the analysis was on competition between “full-line grocers” that carry a wide variety of food items (e.g., bread and dairy, frozen foods, beverages, fresh and prepared meats and poultry, etc.) as well as non-food items, such as household products. The Bureau indicated that, while stores such as Costco, Target, Wal-Mart (non-Supercentre locations), and Shoppers Drug Mart do not offer full-line grocery products, they may have a constraining effect on retail grocery prices for certain products. Unfortunately, the Bureau did not elaborate as to how the presence of these types of stores impacted its analysis.
2. Market is Local: The Bureau concluded that the relevant geographic market for retail grocers is local. The Position Statement indicated that the scope of the geographic area served by a particular store varied based on factors such as whether it was in a rural or urban area, local geography, as well as traffic patterns. The Bureau also based its view regarding the relevant geographic markets on customer surveys and loyalty card data from both the merging parties and third parties.
3. Pharmacies, Gas Bars, and Liquor Stores: Many full-line grocery stores offer additional products or services (either in-store or in a location adjacent to the store) including pharmacies, gas bars, and liquor stores. While the parties’ pharmacy and liquor operations overlapped, the Bureau concluded that consumers can purchase these types of products from a variety of retailers. From this, it appears that the Bureau effectively viewed these additional products or services as separate relevant markets and there is no discussion as to how their co-location may impact competition for retail grocery customers.
The Bureau’s analysis in this case is consistent with the approach taken in prior grocery sector mergers.
Not surprisingly, the Position Statement provides little insight as to how the Bureau may analyze the Loblaws/Shoppers Drug Mart ("Shoppers") transaction (which is currently under review). Unlike the Sobeys/Safeway merger, which involved two full line grocers, the Loblaws/Shoppers transaction is a merger between, a full line grocer that operates in-store pharmacies and a pharmacy that sells certain food and household items. The outcome of the Bureau’s review of the Loblaws/Shoppers merger will likely be of interest to the retail industry, as it may involve a more detailed analysis regarding competition between firms that have partially overlapping operations in an industry where firms are increasingly attempting to redefine their historic market category.