Competition Bureau Review of the Proposed Acquisition of Shoppers Drug Mart Corporation by Loblaw Companies Limited - Competition Burea…
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16/05/2019 Competition Bureau review of the proposed acquisition of Shoppers Drug Mart Corporation by Loblaw Companies Limited - Competition Burea… Home Competition Bureau Canada Resources Media centre Competition Bureau review of the proposed acquisition of Shoppers Drug Mart Corporation by Loblaw Companies Limited Position statement OTTAWA, March 21, 2014 — The Competition Bureau announced today that, following an extensive review of Loblaw Companies Limited’s ("Loblaw") proposed acquisition of Shoppers Drug Mart Corporation ("Shoppers", and collectively, the "Parties"), it has reached a Consent Agreement with Loblaw that preserves competition in the retail sale of pharmacy products and drugstore-type merchandise in Canada by requiring divestitures in 27 local markets. The Agreement also prohibits certain specific conduct with suppliers. In reaching its conclusions in this matter, the Bureau obtained information from many different sources with a view to assessing the relevant facts and evidence regarding the likely competitive effects of the proposed transaction. The Bureau’s review of the proposed transaction included interviews with market participants of all sizes, consultations with industry experts, foreign antitrust agencies and industry associations, the review of internal company records from Loblaw and Shoppers, and econometric analyses of large volumes of industry and economic data. This statement summarizes the approach taken by the Bureau in its review of the proposed transaction. 1 On this page Background Analysis Footnote Background The proposed transaction Pursuant to an Arrangement Agreement announced on July 14, 2013, Loblaw proposed to acquire all of the outstanding common shares of Shoppers for a total purchase price of $12.4 billion. https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03703.html 1/10 16/05/2019 Competition Bureau review of the proposed acquisition of Shoppers Drug Mart Corporation by Loblaw Companies Limited - Competition Burea… The merger would combine Loblaw, Canada’s largest grocery chain, with Shoppers, Canada’s largest drugstore chain. The combined retailer would operate approximately 2,738 stores and 1,824 pharmacies across the country. The parties Loblaw is a publicly-traded corporation that operates as Canada’s largest food retailer and is a leading provider of supermarket, drugstore and general merchandise, as well as financial products and services, through a variety of corporate-owned, franchised and affiliated store banners. Loblaw currently operates 1,414 stores across Canada, approximately 500 of which include pharmacies. Loblaw’s retail locations operate under 22 store banners, including: Loblaws, Real Canadian Superstore, No Frills, Fortinos, Your Independent Grocer and Provigo & Maxi. Loblaw also sells "private label" supermarket products primarily under the President’s Choice (PC) and No Name brands, and certain drugstore-type merchandise under its Exact brand. Shoppers is a publicly-traded corporation that operates as Canada’s largest drugstore retailer. Shoppers is the licensor of full-service retail drug stores operating under the name Shoppers Drug Mart (Pharmaprix in the province of Quebec), with 1,324 stores throughout Canada. Shoppers sells "private label" products under the Life brand. Analysis General approach The Bureau approached this merger review recognizing that both Loblaw and Shoppers had differentiated businesses with a strong competitive position in retail food and drugstore operations, respectively. The Bureau was also mindful that Loblaw would, post-merger, be the largest purchaser and retailer in Canada for many of the overlapping products sold by both companies. The Bureau’s review focused on assessing two main theories of competitive harm: the first involved the assessment of the potential for the exercise of market power by Loblaw in its retail operations which could lead to higher prices for consumers; and the second involved the assessment of market power by Loblaw with suppliers, and the potential impact on competition and consumers. Retail sales to consumers The downstream investigation focused on whether the acquisition of Shoppers is likely to create, maintain or enhance Loblaw’s market power by enabling it to sustain materially higher prices than would exist in the absence of the merger by diminishing existing competition and/or preventing future competition with Shoppers. The Bureau was not only focused on the effect of the merger on price, but on other dimensions of competition that consumers value, including quality, product choice, service and innovation. Overlapping product categories https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03703.html 2/10 16/05/2019 Competition Bureau review of the proposed acquisition of Shoppers Drug Mart Corporation by Loblaw Companies Limited - Competition Burea… Loblaw and Shoppers both have stores engaged in the retail sale of the following product categories: prescription drugs, which are prescribed by a physician and must be sold by a pharmacist; over-the-counter ("OTC") medications, which do not require a prescription; behind-the-counter ("BTC") medications, which require a pharmacist’s intervention; health and beauty aids ("HABA"), which consist of a wide variety of products relating to health and beauty, including vitamins, deodorants, soaps, dental care, baby care, hair care, razors, skin care and various household cleaning products; drugstore-type food ("DTF"), which consist of food products typically sold in a drugstore, including beverages, snack products, milk and a limited selection of both dairy products and bread; and cosmetics. While the number of competitors differs locally, these types of products are sold by many retailers in Canada, such as supermarket chains (e.g. (for example), Sobeys, Metro), mass merchandisers (e.g. (for example), Wal-Mart, Target), wholesale clubs (e.g. (for example), Costco) and drugstore chains (e.g. (for example), Rexall, Jean Coutu, London Drugs, independent pharmacies). Importantly, the breadth of product offerings for the overlapping product categories varies significantly depending on the size and type of retailer. Market definition Loblaw and Shoppers are differentiated in their retail operations, although they both compete for the sale of the overlapping products. Owing to this differentiation and to the level of diversity in the overlapping products, the Bureau’s review focused primarily on the assessment of competitive effects rather than on precise market definition. Although it was not necessary to define the specific product markets, the Bureau generally focused its analysis on the retail sale of: i. pharmacy products, which includes the sale of prescription medications, OTC (over-the- counter) and BTC (behind-the-counter) medications; and ii. drugstore-type merchandise, which includes HABA (health and beauty aids), cosmetics and DTF (drugstore-type</span> food). The Bureau concluded that the relevant geographic market for the retail sale of the overlapping products is local. Consumers choose where 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 physicians and medical services. The Bureau’s local geographic market analysis was primarily based on the distribution of customers around a particular store. In this regard, the Bureau used trade area information provided by the Parties and third parties (which was generally obtained through customer surveys and loyalty program data) and interviews with market participants to determine the origins of customers and the associated trading areas of each store. https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03703.html 3/10 16/05/2019 Competition Bureau review of the proposed acquisition of Shoppers Drug Mart Corporation by Loblaw Companies Limited - Competition Burea… The local market review in this merger was very resource-intensive owing to the sheer number of stores operated by Loblaw and Shoppers across all regions of Canada. In order to efficiently examine these local markets, the Bureau used geomatics software and other computerized tools to focus on those areas where Loblaw and Shoppers are particularly close competitors and where there were few other competitors. Importantly, for each overlapping local market, the Bureau examined concentration levels and the extent and nature of effective remaining competition separately for the sale of pharmacy products and drugstore-type merchandise. The set of competitors for each of these categories of products may differ significantly depending on the local market in question. The Bureau was able to estimate market shares for each overlapping market to identify high concentration markets, using actual sales data from the parties and from many of their major competitors. In particularly contentious markets, the Bureau interviewed local market participants, examined internal documents provided by the Parties, consulted with industry experts and visited local competitors’ stores. Using this approach, the Bureau successfully examined hundreds of local markets where Loblaw and Shoppers are both present and competing to varying degrees, and was able to concentrate discussions with the Parties on the local markets of greatest concern. In particular, the presence of effective competitors was a key consideration in the Bureau’s analysis. Competitive effects Loblaw and Shoppers operate a wide range of different stores