STANDING COMMITTEE ON INDUSTRY
COMITÉ PERMANENT DE L'INDUSTRIE
[Recorded by Electronic Apparatus]
Thursday, May 18, 2000
The Chair (Ms. Susan Whelan (Essex, Lib.)): I'm
going to call the meeting to order pursuant to the
committee's mandate under Standing Order 108(2), a
review of the Competition Act.
From the Canadian Council of Grocery Distributors,
we're very pleased to have with us this morning the
president and chief executive officer, Mr. Nick
Jennery, and the vice-president for the Ontario region,
Mr. David Wilkes.
I'll turn it over to you for your opening statement
and after that we'll move to questions. Begin whenever
Mr. Nick Jennery (President and Chief Executive
Officer, Canadian Council of Grocery Distributors):
Thank you, Madam Chairman, and good morning.
My name is Nick Jennery. I'm president and CEO of the
Canadian Council of Grocery Distributors. David
Wilkes, who is vice-president of trade relations, also
oversees many of the joint industry initiatives that
are taking place between suppliers and distributors.
The CCGD is a national trade association representing
both retail and food service distributors across
Canada, a distributor being a retailer and/or a
wholesale grocery operation. Our members range from
small niche-oriented grocers to large national food
distributors who operate from Corner Brook,
Newfoundland, to Victoria, British Columbia,
representing an industry employing about 470,000
A number of questions about our industry's
competitiveness have been raised during the course of
the committee's hearings. Our goal today is simply to
respond to the testimony and provide our views on the
proposed amendments to the Competition Act. We have
left with the clerk of the committee a copy of the
association's paper, which summarizes our views.
First let me talk about the changing industry. Over
the last five years, the Canadian grocery industry has
undergone a period of significant change. The
increasingly competitive marketplace, with new entries
into the market, new competitors, and more channels of
distribution, has caused an unprecedented amount of
change, change such as a reinvestment in the business
by both large and small distributors, more new stores,
more frequent renovations, new technologies, new store
formats, specialized merchandising, and most
importantly, more attention to delivering what the
consumer really wants. A look inside any new grocery
store really says it all.
Why has this change taken place? It's chiefly because
of the impact of large global retailers on Canadian
grocery companies. The change is profound. Companies
such as Wal-Mart and Costco have changed the
rules of the game with new competitive clout, new
technology infrastructures, new levels of
capitalization, and new global procurement strategies.
To compete against these companies, Canadian
distributors have had to strip out inefficiencies and
compete either on size or specialization or both. The
consumer, as we will demonstrate, has clearly been the
beneficiary and those companies that have read the
trend have been successful.
As indicated on pages 2 and 3 of our paper,
traditional grocery stores are not the only option for
shoppers seeking grocery products. According to
research conducted by NPD market research in 1990,
the total share of grocery dollars that Canadians spent
in grocery stores was 90%. By 1999, nine years later,
this number had dropped from 90% to 81%, a share drop
The flip side of all of this is that some of the new
global retailers that compete in club stores and mass
merchandise segments have seen phenomenal growth. They
started with a share of approximately 1% in 1990 and
their share has now grown to 9% of total grocery sales.
According to research conducted by A.C. Nielsen,
this shift is affecting the entire grocery store.
If we look at the 150 core categories sold in grocery
stores, representing over 80% of the total volume of
groceries sold, categories such as bottled water, pet
food, detergent, and that type of thing, stores have
lost share to the mass merchandisers and warehouse
clubs in 78 of these categories, over 50% of the
categories. To give some examples, the warehouse club
store share of luncheon meats, popcorn, flat water, and
coffee has seen nearly double-digit growth between 1997
and 1999. Similarly, mass merchandisers' share of gum
and bottled water and detergent has grown remarkably in
the same period.
In addition to this, there have been some large
single-focus retailers, such as Petsmart, local
produce markets, and the emergence of new retailers who
are now marketing to consumers through the Internet.
All of this continues to increase the competitiveness
of the marketplace.
In the face of this intense competitive environment,
how do smaller grocers and suppliers compete? Well,
they compete—and they compete effectively—by changing
the rules of the game, by focusing on specific market
niches, such as ethnic or demographic sectors, or
unique store formats or product offerings or customer
service or a combination of all of the above. Grocers
continue to shift their focus in response to changing
consumer demand. There is less dry grocery product on
the shelves. There is more emphasis on freshness, more
produce, more bakery, more ready-to-eat food.
The demand on suppliers, consequently, has also
changed. For a supplier, you either have to be the
number 1, 2, or 3 in the category, or at least have a
unique product that the consumer wants. Anything that
falls outside of those boundaries puts the supplier at
What's the impact on the consumers?
Last year CCGD commissioned the A.C. Nielsen Company
to undertake some research into the price of
grocery products. In addition, we asked that the same
grocery basket that was sampled be compared in the U.S.
and in Canada. This basket was based on the consumer
price index. We have left a copy of the executive
summary of the paper and the study methodology with the
Between 1998 and 1999, Canadian grocery prices
increased by only 1%, this during a period when overall
inflation was 2.2%. In comparison, U.S. shoppers saw
their grocery prices increase from a low of 2% in
Atlanta to a high of 5% in Chicago. As well, the
research revealed that Canadians pay less for their
groceries than their American neighbours. On a basket
of 39 core grocery items, Americans paid a low of $124
in Albany to a high of $144 in Chicago. During the
same period, Canadian prices in comparison averaged
$98. The results are indicated on page 3 of the paper
we've left with the clerk.
The industry is also delivering choice to consumers.
We have heard that the Canadian grocers are not
delivering new and innovative products to Canadians.
The facts are these: for the 48-week period ending
January 1, 2000, over 18,702 new products found their
way and were introduced onto Canadian grocery shelves.
That's over 360 new products each and every week.
Madam Chairman, I just want to point out a typo in
what we left. It indicated 15,702; the number is
With new products brought to the market comes the
opportunity for new suppliers. One of the truest tests
of entry into the grocery marketplace is the issuance
of UPC bar codes. UPC bar codes are a condition for
product listing. Over the last 18 months, over 825
new-company UPC codes have been issued to suppliers
conducting business in the grocery industry. It should
be noted that this number is very conservative, as it
does not include companies that work with food brokers
or importers, or companies that sell produce, meat, or
fresh flowers—all of which were significant areas of
growth within our stores.
Madam Chairman, I put it to you that the Canadian
grocery industry is on the move. It's competitive and
delivering greater value to consumers than ever before.
Finally, I'd just like to comment on the need to amend
the Competition Act to adjust to the demands of
By way of introduction, CCGD does agree that there is a
need to update the act and to take into account the
increasing globalization we referred to earlier. As
such, CCGD supports proposals aimed at informing
consumers, facilitating cooperation between competition
authorities, and creating new processes for dispute
The details of our position are laid out in the paper,
and we'd be pleased to answer any questions on the
points made in our remarks.
CCGD's concerns are focused on Bill C-402 for several
reasons. Adding illustrative examples to the
abuse of dominance provisions of the act that are
targeted at a particular industry, as Bill C-402 does, is
not appropriate. CCGD agrees with the Commissioner of
Competition when he indicated during his testimony on
April 13 before this committee that the Competition Act
is a law of general application. It doesn't apply to a
specific industry. CCGD does not support amending the
act to incorporate proposed paragraphs 78(j) and (l) of Bill
CCGD also agrees that the role of the Competition Act
is to protect competition and not competitors. Again,
as the commissioner stated during the same testimony,
the act must continue to be legislation aimed at
ensuring that competition prevails in the marketplace.
Whether in the form of new store formats, the
introduction of new products, new suppliers into the
marketplace, or more importantly, competitive prices,
the competitiveness of the Canadian grocery industry
meets this test.
Adopting amendments laid out in Bill C-402 could have
the exact opposite impact of what was intended.
Rather than enhancing clarity and efficiencies in
the Canadian grocery industry, the government could
possibly put at risk both the companies and industry
best practices outlined in our paper.
Once again, I'd like to thank you for the opportunity
to present our views, and we'd be pleased to answer any
questions from the committee.
The Chair: Thank you very much, Mr. Jennery.
start with Mr. Penson, please.
Mr. Charlie Penson (Peace River, Canadian Alliance):
Thank you, Madam Chair. I'd like to welcome our
guests here this morning. I've been waiting for you
for a while, to see what these bad guys really look
like. We've heard some stories about how competition
is inhibited in the grocery business.
Mr. Jennery, I heard you say this morning there is
fairly intense competition in the grocery business,
especially from some of the new box stores like Costco,
which are taking some market share. I'm wondering
if you could tell the committee, if in your view
competition has increased or decreased in the last ten
years, how would you rate that?
I'd also like a comment on the vertical integration
side of it. You say you represent wholesalers and
retailers. There have been some comments about that
being a practice that maybe is also hurtful for
competition. I'd like your viewpoint on that.
The third thing is that my understanding is that the
percentage of disposal income that Canadians spend on
groceries has been in steady decline for some time. We
have a farm ourselves, and some 30 years ago when we
first started, in my understanding, Canadians
spent about 18% of their disposal income on groceries
and food. Now it's down to about 10% or 11%. I
don't know if those numbers are quite accurate, but
there's been a trend that way. I was wondering if
that's your read of what you could tell us about that.
Mr. Nick Jennery: Yes, I'd be pleased to answer
In terms of competition, what we have seen in the last
ten years that you refer to is there are more channels of
distribution. You can buy grocery products in more
outlets in more different types of retail store formats
than ever before, and this is on the increase. You can
buy grocery products at mass merchandisers,
at convenience stores, at gas stations, over
the Internet, and there continues to be erosion of the
traditional grocery channel taking into account all of
these other channels of distribution. So the
overall sales look flat because the pie has been divided
amongst more competitors.
One of the effects of this is that it has caused
traditional grocery stores to take a look at their cost
structure and to be more competitive. Frankly, the new
competitors that have come into the marketplace,
whether it's over the Internet or the basic store
formats, operate at a lower cost.
Therefore, to be price competitive there's really been
a tremendous effort to strip out inefficiencies, such as
standardizing business practices, whether it's on
technology standards, that type of thing, getting rid
of inventory out of the pipeline. A number of studies
are available indicating the inefficiencies that the
industry has addressed over the last five years.
In terms of vertical integration, the second highest
cost for a grocery store is the procurement of product,
labour being the first. Given that you're looking at
an industry that operates traditionally on a 1% to 2%
margin, it's a $60-billion retail industry plus about
half again on food service. But they only net 1% to 2% net
margin. So you have to be very sharp on your
operations, very sharp on your highest cost factors.
If you look at the procurement of product, that is why
there is the existence of buying groups. That is why
there's the existence of vertically integrated
companies. There are many ways to procure product,
and in fact it's done for just that, how to get the lowest
possible cost. Obviously that's in proportion to the
sales that any particular company does, but it continues
to be a focus. There continue to be new initiatives
to try to drive down that cost. In fact, manufacturers
have felt that drive as well.
In terms of the percentage of dollars spent on
groceries, the way to look at it... it's a little
disgusting, but it's share of stomach as opposed to
a share of the grocery dollar. That is, as consumers we
are also moving toward a trend to more ready-to-eat
products, products that you eat away from home. The
food service business continues to grow, and this is
driven by the consumer's demand for convenience. And
ready-to-eat foods have actually come down in
price, making it a much more affordable option.
Mr. Charlie Penson: In regard to the inventory,
you're saying you're working on a margin of about 1%.
It's 1% to 2%. I gather from this that it has to be
turned over many times during the course of a year.
Mr. Nick Jennery: Right.
Mr. Charlie Penson: It seems to me that you'd want
a pretty smooth-running delivery system to be able to
Mr. Nick Jennery: Correct.
Mr. Charlie Penson: Is that part of the reason
you need this vertical integration?
Mr. Nick Jennery: We looked at a study called the
efficient consumer response, which really looked
at the effectiveness of the industry. That was
approximately six or seven years ago. At that
time it showed that the value of inefficiencies was
around 10% of total operating costs, and 40% of the
opportunity lay in addressing inventory issues.
So in years gone by a grocery store would see one
delivery per week. Now they see three deliveries per
day. It's designed to take out the inventory, because
if you have inventory you have to manage it. You have
to put somebody in charge of it. You have to put a
building around it. It gets damaged. There's a lot
of overhead associated with that.
Mr. Charlie Penson: And inventory is expensive as
Mr. Nick Jennery: Correct.
Consequently you're seeing the grocery industry
move a lot like the automotive industry did some years
back, with a just-in-time... Now with new
technologies that are being implemented we're getting
very close to the point where as you buy a grocery
product off the shelf and that information is captured
through the checkout, that triggers a series of
messages right back to the supplier, saying,
okay, we now need to replenish.
So you have stores actually getting involved in
computer-assisted ordering, all designed for that smooth
flow, to minimize inventory. The back rooms in the stores
are getting much smaller; the front parts of the
stores are getting larger so that consumers have more
choice of product and services.
Mr. Charlie Penson: Changes in consumer demand—wanting
fresher product—could also be a part of that.
Mr. Nick Jennery: Correct.
Consumers are far more demanding for freshness than
ever before—freshness and highest quality. You just
cannot have product that's past code date. To get it
to the shelf in the fastest ways possible, that's what
gets the consumer buy.
The Chair: Thank you very much, Mr. Penson.
Mr. McTeague, please.
Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.):
Thank you, Madam Chair, and good morning again, Mr.
Mr. Nick Jennery: Good morning.
Mr. Dan McTeague: It sounds like similar arguments
you made on Bill C-235 seem to ring true again. I'm
wondering, during the period of time from when we
dealt with Bill C-235 to the present time when we're now
dealing with Bill C-402, what has changed?
Mr. Dennis J. Mills (Broadview—Greenwood, Lib.):
Could you explain Bill C-235?
Mr. Dan McTeague: Bill C-235 was on predatory
price. Mr. Jennery and his association presented
themselves opposed to Bill C-235, which was aimed at
several industries, as the Competition Act requires, as
is Bill C-402.
Mr. Jennery, I'm interested. In that period of time,
I think you would have to agree, a lot has changed in
the grocery industry. I understand that you would
represent here today companies like Sobey's, Great
Atlantic & Pacific Tea Company, and of course, Loblaws.
I'm interested in your comments to the effect of what
has occurred both in Canada and the United States. The
United States subcommittee—a Republican-led
committee, Mr. Penson—took the liberty of
investigating the slotting fee issue in the United
States based on the fact that five super-retailer
chains were in fact controlling somewhere in the order
of about 30% of the marketplace.
I'd like to ask you if you could give me an idea of
just how large and what type of percentage of market
share—and that is grocery market share in Ontario, in
Canada—those three companies I've mentioned to
you occupy relative to grocery distribution and the
retailing of groceries.
Mr. Nick Jennery: A&P, Loblaws, and—
Mr. Dan McTeague: Sobey's, and, if you wish, Empire
Mr. Nick Jennery: The way to look at that is
the percentage of groceries sold in all channels of
distribution as opposed to the percentage they
have of the total grocery segment. I don't have the
actual numbers. I could provide the committee... We
know the sales of those companies. We know the total
size of the marketplace. I'd rather give the
committee an accurate number.
Mr. Dan McTeague: Mr. Jennery, I'd appreciate
that. I have the 1998 numbers, and you'll forgive me,
I do not have the 1999 numbers. Some of this is
prior to the mergers that have been
approved between Loblaws and Provigo and of course the
unapproved but proposed merger between Sobey's and
Of the top grocery retailers in Canada, of a total of some
$50 billion, Loblaws is at $17 billion, Sobey's is at $9
billion, Metro-Richelieu is at $3 billion, and Great Atlantic
is at about $2 billion.
One would have to agree that given the strength of
your retail purchasing power, certain liberties have
been allowed by the retailer in the form of trade
allowances. I'm referring specifically to listing
fees, off-invoice allowance, everyday low price, co-op
advertising, over and above the fees, warehouse
allowances, and special programs.
A manufacturer was kind enough to provide me with
information—knocking out his name, of course, because
if I were to give that name here today, I'm sure he
might not be doing business with Loblaws, and it turns
out the individual is no longer doing business—with
respect to auto-subsidy. Once the company was taken
over by Loblaws, the individual was told he had to
refund any concession they gave to the company that was
acquired—in this case, Provigo—and that of course was
deducted unilaterally from his invoice.
We undertook a study last summer, which I'm sure
you're aware of, an aggregated result of several
surveys, including the question of listing fees, which
you refer to as bar codes and I refer to as SKUs. I
think that's the more proper industry terminology. This
generally points in the direction that suggests the two
large players are now demanding much higher trade
allowances than they would otherwise be capable of
demanding if there were more competition.
I'd like you to tell this committee how you believe
you can come here and tell us everything is perfect and
white and pure as the driven snow, when in fact there
are serious problems with manufacturers who can't get
access to your product and independents who are going
out of business because you control the warehousing as
well and the wholesaling of the product.
Mr. Nick Jennery: You have a lot of questions
there, so let me see if I can't cut through that.
I cannot respond to a situation involving companies I
don't even know, and I respect the confidentiality with
which it was given to you.
Mr. Dan McTeague: Loblaws.
Mr. Nick Jennery: Loblaws and this other supplier
you're talking about. I don't think it's appropriate
for me to talk about that.
But let me address the listing fees part of it. I
indicated that over 18,000 new products were introduced
last year. This is a record number of new products. It
not only indicates opportunity for suppliers who have
products consumers want, but it also reflects the
desire for the retailers—
Mr. Dan McTeague: Excuse me, Mr. Jennery. Is that
private label or brand label?
Mr. Nick Jennery: All new products.
Mr. Dan McTeague: Sorry. Could you tell me if
that's all new products including private labels?
Mr. Nick Jennery: It's all new products including
It also talks about the opportunities for suppliers.
I mentioned the changes in store formats, and if you go
into any new store, you will see exactly the same
changes. The dry grocery section is getting smaller,
because you and I and other consumers are looking for
more variety in the fresh categories, more produce,
more health-related sections. There are wellness
centres in stores now that were never there before.
There are full-line pharmacies in there that were never
The stores are not getting bigger, so part of the
trend that has gone on is that the retailers have asked
what consumers really want. One of the realizations
that's come is that there's probably, in some
categories, a fair amount of duplication as opposed to
Mr. Dan McTeague: Thank you.
Mr. Nick Jennery: So what the retailers are trying
to do is provide the greatest variety that consumers
want. Bear in mind that consumers are asking for
Mr. Dan McTeague: Is duplication, in your view,
three different companies competing for the same
product per SKU? Because of the question of
I point out that the 1998 Canadian Grocer suggests
our square footage is much smaller than that of the
United States; U.S. stores are much larger, with higher
average sales per labour output; and American
supermarkets carry more SKUs than Canadian ones and
have a high average dollar sale.
When you're talking about having more product on the
shelf but not increasing the size of your average
stores and at the same time being concerned about
duplication, are you really referring to the fact that
there is in fact a dearth of choice at your
supermarkets relative to three years ago, relative to
the United States?
Mr. Nick Jennery: No, absolutely not. The U.S.
and Canada are very different marketplaces. You have
different consumer habits; you have different buying
patterns. If you take a large superstore in Ontario,
chances are it will struggle to do well. If you take
that same store and put it out west, it will do
increasingly well. The vast majority of sales in the
province of Quebec is done through small independent
These are consumer choices. They are not reflected in
the U.S. marketplace. When I'm talking about
duplication, I'm saying in years gone by there were 58
SKUs of decaffeinated coffee. Retailers now realize
that consumers don't need that amount of choice. They
would rather have the additional categories than—
Mr. Dan McTeague: Mr. Jennery, on that question—
The Chair: Mr. McTeague, please allow Mr. Jennery
to finish the answer.
Mr. Dan McTeague: It's an important point though.
If he's raising the question of 58 SKUs as an example
to elicit a point, Madam Chair, I'd like to ask—
The Chair: Mr. McTeague—
Mr. Dennis Mills: What are SKUs? I'm not a
Mr. Dan McTeague: Stock-keeping units.
Mr. Dennis Mills: Thank you.
Mr. Nick Jennery: Individual retailers look at the
amount of grocery shelving they have. They understand
their consumers extremely well. The consumer in
Scarborough is very different from the consumer in
Hamilton or in Ottawa. Based on previous buying
patterns, they merchandise their products, what they
call shelving planograms, which are very distinct in
each of the stores. Consequently in the lineup of
products, you're seeing much more specialization in
individual stores in individual regions. I'm sure if
you go around the Ottawa area, you'll see different
listings of products based on different merchandising
and marketing strategies.
Mr. Dan McTeague: Mr. Jennery, if there are 58
products that could sell—58 brands of coffee, to use
an illustration of your example—
Mr. Nick Jennery: Decaffeinated coffee.
Mr. Dan McTeague: That's fine, decaffeinated.
Let's call it instant as well. If they were selling
at whatever price, and the manufacturer of the product
had no trepidation with competing against 57 other
members, why is it there are only two or three left
in some of those same stores? You've given us an
example. Are you telling me or are you telling this
committee that of those examples, those individuals have
simply decided to withdraw? Or could it be that you
have increased their stock-keeping unit shelf fee to
such a point that only those who can afford the top
buck, through your planograms, can keep their product
on the shelf? Does that not happen?
Mr. Nick Jennery: No. It makes no sense for a
retailer to provide a barrier to a product that is in
demand by consumers. There's a point of diminishing
return. You carry so much variety of a particular
product that in your sales or your profitability for
that very expensive shelf real estate, you get to the
point of diminishing return. Consumers have shown
through their buying habits that they would rather have
the variety of products in terms of different
categories and services in the store than a more
limited lineup of products.
Having said all that, there are very different store
formats out there. Some specialize in a single
category, some have both services and products, and
some just specialize in produce. This is the
differentiation we're seeing in the marketplace.
The Chair: Make this your last question, Mr.
Mr. Dan McTeague: Yes, thank you, Madam Chair.
We've heard from a number of individuals who have come
to this committee, to other members, and to me and have
spoken, in fact even during the period of Bill C-235.
On that very example alone, I
don't think you've clearly illustrated it for all of us
here. If I'm making money and there is quite a variety
of competition, I as a manufacturer would withdraw the
product if it were not selling, based on the choice you
just spoke about. The question is—
Mr. Nick Jennery: That's not true.
Mr. Dan McTeague: You're saying they're there, but
because you've changed your format, I'm concerned and
we're concerned that the three or four companies that
dominate 60%, 70%, 80%, or 90% in a particular area may
be able to demand fees that are totally unrelated to
the simple laws of economics of supply and demand. If
the consumer does choose to have that instant
decaffeinated coffee and the manufacturer is quite
willing to keep providing that, since they're not
losing money, because it's being purchased, what's
hurting them is that the retailer is in fact stopping
them from providing that product by making their price
uncompetitive by raising their listing fees.
Mr. Nick Jennery: Let me see if I can provide some
clarity here. I mentioned that over 18,000 new
products were introduced to the marketplace. A
lesser-known fact is that 71% of those new products
fail. I don't know of any other business that
tolerates a failure rate of 71% and still remains
competitive in the marketplace. That's an A.C. Nielsen
number. That's a well-defined definition that's also in
the briefing paper we have issued to the clerk.
So you list a product and market it, warehouse it,
inventory it, put it in all the stores, and then you
find it doesn't sell. The manufacturer in good
conscience thought it was something that would be in
consumer demand. The retailer thought the information
was there and the research was done to show this is
something consumers want. We have all seen many, many
examples of how those products don't last. Think of
the whole green products issue, when the environment
was so sensitive. Look at the number of products on
the shelf now. Everybody wanted to buy environmentally
sensitive products. They may say that, but they don't
I hope that's helpful.
The Chair: Thank you very much.
Mr. Dubé, do you have any questions?
Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): I have
only one. Are there any members from Quebec in your Council and do
you have corporate groups among your members?
The Chair: Just a second, Mr. Dubé. Can the
translator say something in English to make sure
they're hearing English?
Mr. Nick Jennery: Pardon me, Sr?
Mr. Antoine Dubé: I wanted to know if you had any members in
Mr. Nick Jennery: Yes, I do. Companies such as
Metro-Richelieu and Provigo are all members of our
organization, as well as smaller companies such as
Jean-Paul Beaudry and A. De La Chevrotiere.
Mr. Antoine Dubé: All right. Are the statistics you mentioned
this morning broken down by province? It's not included in the
Mr. Nick Jennery: We have a breakdown of market
share of grocery stores by province, yes. We can
provide that to the committee, if that's what the
Mr. Antoine Dubé: I would appreciate it. Let's say I manage to
read English, but it takes me more time. Would it be possible that
that breakdown by province be then translated by the House? Thank
you. That's all.
Mr. Nick Jennery: We will undertake to do that,
The Chair: Thank you very much, Mr. Dubé.
I have a question before we move on to the next
person. When you say new product, how do you define
that? Do you mean new packaging, new labelling, new
sizing? Does that count as part of the 18,000—
Mr. Nick Jennery: A new product is one that
requires a separate new UPC code, so it could be a new
flavour of Jello, it could be a luncheon meats and
cheese offering. One of the big debates going on—
The Chair: But it could be a different size of the
Mr. David Wilkes (Vice-President, Ontario Region,
Canadian Council of Grocery Distributors): Excuse me.
Something like that would not require a new UPC code,
which is the product identifier, so it could be
marketed under the same code—the bar code on
The Chair: I don't understand that, because my
understanding is that the bar code also tells you what
the price is.
Mr. David Wilkes: Correct.
The Chair: If you bring in a new size, it's
going to have a different price, so it's going to have
to have a new bar code.
Mr. David Wilkes: A new packaging style wouldn't
require a new UPC code, but a new size would.
The Chair: Yes, so a new size.
Mr. David Wilkes: Right.
The Chair: So if you have the old and the new
packaging, it keeps the same one.
Mr. David Wilkes: Right. So if it's new facing,
The Chair: How many of these products would just
be new sizes of the same product, or variations of the
exact same product?
Mr. Nick Jennery: I don't know. We could probably
find out that information from A.C. Nielsen. They
keep an active listing of all new products. I couldn't
The Chair: I guess I'm trying to determine what's
a new product and what's not. I mean, I don't really
think a new package size is a new product, although it
requires a new UPC code, or whatever it's called. It
just concerns me that we're saying there are 18,000 of
them, when really there aren't. I mean, they just
decided to change the packaging size.
Mr. Nick Jennery: Madam Chair, I would say if you
walked into the grocery store, you'd see the new
product offerings are particularly in the
health-related, nutrition-related products. There are,
as I mentioned, two aisles of health products that were
never there before. Organics are brand-new products.
Meats and grocery products with less salt, less sugar,
less fat—all of those types of things are new
products. The ethnic food sections—Mexican,
Taiwanese, Chinese—are much bigger sectors than ever
I'm sorry, I'm just scanning through the...
Equally, if you look in the produce department, before
you could get maybe two or three different varieties of head
lettuce and now you can get eight or ten different
There are more imported... two out of three produce
products are now imported out of country, which relates
to the more exotic products, different products.
Given a little bit of time, I
could probably give you some harder differentiations, if
that's of help to the committee.
The Chair: You mentioned that you compare the
amount you pay for a Canadian shopping basket versus
the American. What's the exchange rate you're using on
Mr. Nick Jennery: That was done based on a U.S.
currency basis, which is detailed in the methodology in
the handouts there. It was all calculated in U.S.
currency. You have to pick a currency in order to
compare apples to apples.
The Chair: Well, yes, but you could have just had
the Canadian dollar and changed it, so we know on a
daily basis if that's fluctuating. I'm just trying to
get an idea. Is that relevant today? Is it the same
Mr. David Wilkes: The study used the exchange rate
at the time.
The Chair: When was it?
Mr. David Wilkes: The study was concluded in
August 1999. It was the particular exchange rate on a
moving basis for the 12-month period. The answer to
the question is that it would be very similar.
The Chair: Okay.
I have one other question. In the paper you provided,
you show the difference in the amount of sales that are
going towards memberships. Does that compare to the
Mr. Nick Jennery: There's a similar trend, but
there's not as great a penetration. I'd have to get
back to you with the numbers on that one. There is a
similar trend in that club stores have taken a lot of
share. Essentially what they do is they take the
highest-selling products and they list those without
the full-line variety, and that's how they manage to
gain market share.
The Chair: But how do you define club memberships?
Mr. Nick Jennery: Oh, we're talking about the
Price Costcos, the—
The Chair: How do you differentiate that from
Mr. Nick Jennery: A Zehrs store would not be
The Chair: If you have a mortgage at the bank at
Zehrs, as an example, you get this card and then every
time you buy groceries, you get points. So what's the
difference? You're getting points in the grocery store
for being a member.
Mr. Nick Jennery: To be very specific, the market
share that we talked about in our paper relates
exclusively to Price Costco.
Mr. David Wilkes: A club store is defined as one
where there's a membership fee to join, whereas the
program that Zehrs has is more of a loyalty program for
those particular customers.
The Chair: All right.
Mr. Dennis Mills: Thank you very much, Madam
Gentlemen, I represent and am working with close to
100 members of Parliament in this particular House, and
we are working with close to 240,000 family farms in
this country. There is a view and a feeling that the
share of the food chain in this country is not being
distributed evenly or that the share for the farmer is
not appropriate for the amount of investment and the
amount of work that goes into that production.
I am here today to ask for consideration and
cooperation. We could sit down with your organization,
the Canadian Council of Grocery Distributors, and
design a plan, figure out a way that we could challenge
the consumers. If they were walking down an aisle in a
Loblaws or a Sobey's or wherever and they saw a
particular product that had an icon or a logo on it
that was linked to the Canadian family farm system, and
if that product would maybe cost a little bit more but
the consumer knew that the extra portion was going
directly into the family farm realm, ultimately this
could have two objectives or two realizations. First,
we could work at sustaining the Canadian family farm
system in this country. Second, we could give
consumers a voluntary exercise where they could choose
to participate, to decide whether or not they felt that
sustaining the Canadian family farm was an important
My concern, after listening to you this morning, is
that with the competitiveness and the squeeze on all
the people you're dealing with, from the manufacturers
to the distributors, what I'm asking for flies in the
face of everything you're trying to do to keep your
retailers competitive. I need to know whether or not,
Mr. Jennery, you would consider taking up this
challenge, on behalf of the farmers of Canada, with
myself and others.
Mr. Nick Jennery: Thank you for your suggestion.
At the risk of saying it's already underway, let me
just explain a couple of things.
Right now there are a number of provinces—the
province of Quebec and the province of Alberta are two
that come to mind—that have provincial government
initiatives designed to provide incentive not only to
buy locally but to grow locally. The province of
Quebec is one of the more aggressive in that regard. I
think they're now in their second year of that, and
there are statistics available about increasing share
of locally grown product sold through local stores.
Mr. Dennis Mills: But we're not talking about the
share of sale. We're talking about the share they
actually receive at the farm gate.
Mr. Nick Jennery: A share of the sale of—
Mr. Dennis Mills: In other words, they end up
receiving more rather than being squeezed and receiving
less. We're not necessarily selling more. We're
saying their net receipts are more.
Mr. Nick Jennery: You're talking about some sort
of price regulation, then.
Mr. Dennis Mills: No, we're not talking
There is a view that is emerging from some very
unscientific testing that consumers in major markets
feel strongly that we should preserve the family farm
system in this country. We have reason to believe that
some of your membership does not share that view. We
have been told outright by one of your counterparts,
Mr. George Fleischmann, that he does not share
that view. He has the view that we will find food at
the cheapest price. It doesn't matter where we buy it,
how we get it, whatever. I'm sure you're well aware of
his view and the view of many of his particular
membership group. I'm talking about the farmer's share
By the way, I'm not talking about a regional program;
I'm talking about a national program.
Mr. Nick Jennery: Okay.
From a retailer's standpoint, they're obviously very
customer-sensitive. Customers have shown the sort of
sensitivities you have talked about. From a business
standpoint, retailers would rather buy fresh product
locally. Who wants to pay for the additional logistics
of trucking it across the country or even out of
the country? It does nothing for the quality of the
So they would rather buy locally. In fact, there are
many examples where that actually happens. Even though
there are corporate merchandising and procurement
programs, there are stores and segments of stores that
are authorized to buy locally. I think Mr. Wilkes has
some examples of that.
In terms of their share of profit of the sale, which
in a sense is what you are getting at, I'm a little
more uncomfortable with that because that interferes
with the direct business transactions between supplier
Mr. Dennis Mills: Mr. Jennery, you're missing my
point. I'm sorry.
You represent the most powerful grocery retailers in
our country. When grocery retailers decide as a force
that they're going to do something on a national basis,
they can do it with a flick of the finger. I'm asking
you if there's a possibility that I could sit down with
you and some of your major retailers, at the senior
level, to talk about creating and designing a plan that
ultimately would see whether there's a way that we
could get a better share into the family farm system in
this country. We don't have the answer here today, but
would you engage in that kind of dialogue?
Mr. Nick Jennery: I would bring the retailers to
the table to have that discussion. I would do that.
Mr. Dennis Mills: Thank you.
Thank you, Madam Chair.
The Chair: Thank you very much, Mr. Mills.
Mr. McTeague, you had another question?
Mr. Dan McTeague: Yes, I did.
Mr. Jennery, I have taken the liberty of visiting
several executive boardrooms of some of the largest
and, to some extent, medium-sized manufacturers in this
country. There are not one, not four, but dozens.
Understandably, some did not want to have this
confidential inquiry because they were concerned about
They told me in person in those boardrooms that the
major grocery chains have demanded a 100% increase in
their listing slotting fees without justification.
As an example, in 1998, it could have been $50,000 per
SKU. Today, it's an average of $130,000.
Do you think there's an impediment to new products
coming out, the so-called choice you referred to a
little while ago?
Manufacturers literally told me they can't bring new
products out in Canada. Many of these are
multinational companies that are doing very well in the
United States and can bring new product out, but
because of these listing fees and other trade
allowances that have been heaped on by three companies
that have a virtual oligopoly, a virtual monopoly,
these manufacturers of new product are facing
significant barriers. They are not able to bring a new
product out unless they raise prices artificially,
which has two effects: one, higher prices, and two,
Generally, in your opinion, how can this
be supported? How can this be sustained, and how are
consumers getting the benefit when there is less
choice and ultimately higher prices?
Mr. Nick Jennery: Mr. McTeague, I would say that
the statement is not true. New products are the
lifeblood of our industry.
Consumers demand it, and if you don't provide it,
they'll go somewhere where they can find it. The
growth in the categories we talked about is a clear
indication that consumers want a different variety of
products than they wanted several years ago.
The problem stems from when a manufacturer
develops a product and says, this is a great new
product; I believe in it and you ought to put it on your
shelf. Sometimes the research is not well done, and
sometimes it may be a nice new product but people
don't buy it.
The whole environmental line of
products is one of the most classic examples. It
looked like a great product. People were saying
they're prepared to buy environmentally sensitive
products, but they don't buy them.
So the retailer understands better than anybody else
what their customers, who they see day in, day out,
week in, week out, want. They know without a shadow of
a doubt... put it this way: they're in the best
position to understand what their consumers want.
If there is a new product that they feel will sell,
they will put it on the shelf.
The listing fees are
not a barrier. Listing fees have come about because of
the tremendously bad track record of new product
introduction: 71% have to be pulled off the shelf.
That's displacing other products in the meantime.
That's loss of sales. It's a huge inefficiency.
Mr. Dan McTeague: Mr. Jennery, that's a very nice
answer, but you haven't answered my question.
Have listing fees by your member companies gone up in
the past year, yes or no?
Mr. Nick Jennery: I can't answer that. I don't
Mr. Dan McTeague: You can answer everything else,
but you can't answer that. The manufacturers know
it's going up.
Mr. Nick Jennery: Mr. McTeague, listing fees are
just one part of an overall negotiation between
supplier and retailer. Each individual retailer will
decide whether they're going to promote it, whether
they're to going market it, whether they're going to put
it in 250 stores or in one store, whether they're going
to put it on the top shelf or at the back of the store,
whether they're going to provide all sorts of
additional support for it or not. These are individual
negotiations of which listing fees are just one aspect.
Mr. Dan McTeague: Mr. Jennery—
The Chair: This is your last question.
Mr. Dan McTeague: Thank you, Madam Chair.
At the beginning I indicated to you the various trade
allowances, and listing fees are the most prominent
among them, because I think people readily understand
those in Canada and the United States. However, in
failing to answer the simple question that
manufacturers have brought to my attention and to the
attention of other members of Parliament, you have in
effect suggested that everything seems fine in this
I have a more specific question, then, if you're not
going to answer or can't answer that one.
If listing fees are indeed raised to such a point that
it becomes unprofitable for the manufacturer to provide
the product and to stock it and put it on the shelf,
how is it possible to have negotiations with people who
simply can't afford to put their product and pay the
freight and pay the rent, or pay up the payola?
Mr. Nick Jennery: The profitability of the
manufacturer sector is far greater than the
profitability of the retail sector.
I think the numbers of new product entries, new
categories, new suppliers to the retailers, all
indicate that there's a very real opportunity that is
being capitalized right now, as we speak, for smaller
suppliers, for suppliers that have clearly new
products, and the debate will continue as to whether or
not a new product will sell.
I can't answer it any clearer than that. You have to
look at the statistics of the new products that are on
the shelf, the 825 new companies, brand-new companies,
that are now supplying products to grocery stores, that
weren't providing products 18 months ago. These are
The Chair: Thank you very much, Mr.
Mr. Jennery, I want to ask briefly, on page 5 of the
brief you provided to us, regarding proposed paragraph
saying that in most trading relationships there's a
variety of financial reconciliation methods. Are those
not agreed on things?
Mr. David Wilkes: What we're referring to there
is the deductions reference in the bill. The
deductions are governed by two things. We have a set of
industry guidelines that we talk about in the paper, and
as well there are contracts between the individual
trading partners. So, to your point, they are—
The Chair: So proposed paragraph 78(l) wouldn't
affect that. If you have a contract already that says
the method of payment, how payment is going to
be made, you really don't have a concern with proposed
Mr. David Wilkes: What we have a concern with,
with respect to proposed paragraph 78(l), refers to a
specific activity that is often undertaken to fulfil
those requirements. So deductions are one of the most
efficient ways of reconciling—
The Chair: If you have a contract and you set out
methods of payment in that contract... You either set
this out or you don't.
Mr. David Wilkes: Right.
The Chair: Otherwise I don't think you
should be doing it either. If it's not set out
and it's not agreed on in advance...
People have GST they have to pay or remit. There are
balances they have to make, and so I think there has to
be some expectation of what they can receive, what
their receipts are and what their payments are. But if
it's part of the contract, that's obviously a different
Mr. David Wilkes: Right, I agree. Indeed that's
what the guidelines we've referenced sought to add
clarity to, because where you get the confusion is when
there's a lack of communication, when people don't
understand what the activity was, what promotion, what
amount, the timing, and all those things. So that is
bringing the additional clarity as well.
The Chair: Earlier, Mr. Jennery, you mentioned
that the majority of stores are not getting larger, or
the majority of stores are staying the same size and
keeping the same shelf space. I know in my area that's
not necessarily the case.
Mr. Nick Jennery: I'm looking at total square
footage. There are clearly some new big stores being
built. There are also some smaller stores being built.
If you look at the average size—and maybe that's
misleading in itself—the average size of a retail
grocery store is not increasing and in fact is
far smaller than in the U.S.
Having said that, there are niche stores being set
up, only because some consumers... And you'll see that
trend. As the population gets older, they don't
want to walk around a 100,000 square foot store; they'd
rather go to their produce market or the local store.
Some would say, “You know what? I like the ambience of
an aircraft hangar. If it means I get lower prices, I'll
So you get different store formats, but
in aggregate, if you look at the overall square footage,
no, it's not increasing.
The Chair: I also want to thank you for
agreeing to undertake Mr. Mills' suggestion. That means a
Mr. Nick Jennery: Absolutely, I can't promise the
outcome, but I'll certainly enter the discussion.
The Chair: That means a lot to a lot of
members in this committee, so we'd appreciate that.
Mr. Nick Jennery: Sure, absolutely.
The Chair: But we do appreciate you coming here,
and we appreciate your brief. We anticipate that Mr.
Dubé will be able to read it as well.
Mr. David Wilkes: We will do that immediately.
The Chair: I really do appreciate that.
Mr. David Wilkes: Not a problem. It should have
been done beforehand.
The Chair: Thank you very much.
We're going to suspend for two minutes while we change
The Chair: I'm going to call the meeting back to
We're very pleased to welcome our next witness. From
Democracy Watch, we're very pleased to have with us
today Duff Conacher, the coordinator.
Mr. Conacher, if you have some opening comments, then
we'll move to questions.
Mr. Duff Conacher (Coordinator, Democracy Watch):
Thank you very much.
The Chair: I'm sorry. I have a point of order
from Madame Jennings first.
Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.):
Madam Chair, for some time, we have been a little bit permissive or
tolerant regarding the distribution of briefs submitted by
witnesses in only one of the two official languages. However, there
was a time when we did refuse such papers. It used to be a rule of
this committee to refuse any document that was not translated and
available in both official languages.
I want to remind you that we had been very strict on that at
the time of public consultations on bill C-6, currently known as
the Privacy Act. Subsequently, those rules were somewhat relaxed.
However, I find it unacceptable that an organization which
represents retailers from the grocery industry and whose sales,
according to our witness' own statement, amounts to billions of
dollars, submits here today a paper written in English only and
that it is distributed.
I want to point out to you that perhaps my comments should not
apply to an organization such as Democracy Watch which, though
Pan-Canadian, has few resources. They are a group of lawyers who
fight for consumer rights. If we all agree with that restriction,
I am going to propose that we come back to a strict application of
the rule: any paper which is not available in both official
languages shall not be distributed, period.
It should be possible to make a distinction between an
organization which has few resources and one which has billions of
dollars at its disposal.
The Chair: First, Madame Jennings, we have never
had a rule at this committee. For Bill C-6, we were
able to give our witnesses six to eight weeks' notice
in advance of the hearings.
Secondly, they do not have to provide in both official
languages. The rule of the House of Commons is that
they can provide in either official language. We ask
large organizations to provide in both official
languages if they can. If they do not, we then have it
Regrettably, we only have three weeks for these
hearings, and regrettably, we do have some witnesses who
are given less notice than others for when they are
going to appear because of rescheduling of witnesses.
That does happen. Sometimes the onus is on us to try
to fit people in and to try to do what we can in the
timeframe we have.
The witness who was just here from the grocers has
agreed to translate that for us and to get it to us as
quickly as possible, which is something they do not
have to do, but they are a large group and they have
agreed to do that. Otherwise it would go through the
normal translation process that we have available to
I will ask the clerk to reiterate with witnesses when
they appear before this committee that we expect large
organizations to bring it in both official languages.
Mr. Dubé already raised this in his questioning with
the grocers earlier on. They definitely received the
message and they will probably not be appearing before
this committee again without providing in both official
We will reiterate that very same statement with all
witnesses who are asked to appear. I will ask the
clerk to make it very formal that we are anticipating
that. At this committee we have often had discussions
with witnesses as to why they have not been in both
Ms. Marlene Jennings: Mr. Dubé, I'm sorry, but I have not
Mr. Antoine Dubé: Oh, pardon me.
Ms. Marlene Jennings: Thank you. I understand quite well that
our witnesses are not compelled to provide their documents in both
official languages, but really, an organization which serves
members in Quebec, as was stated by the witnesses themselves, must
undoubtedly be able to serve them in French. I think that even if
it meant a delay of three days...
Besides, our clerk did get in touch with them three days ago
to ask them whether they could be here today. With the
technological et electronic means which are available now, there
are translation firms who can do it. There are even
computer-assisted translation programs. I know some people who use
them. Normally, one can have an 8-page document translated within
12 hours. So, I feel that such an organization could afford it,
even though it is not compelled to do so. Those people have no
The Chair: With all due respect, Madame Jennings,
we do not have the ability to get documents translated
for committee in 12 hours.
Ms. Marlene Jennings: I'm not talking about us here. I'm
saying that there is no excuse for a quite well-heeled national
organization, which represents members from across Canada and which
operates in both official languages, not to be able to find a way
to have its papers translated, be it within a 36 or 48-hour delay.
The Chair: All right. Mr. Dubé.
Mr. Antoine Dubé: Having checked that point with our clerk, I
know that any committee can adopt rules from the moment it is
created. Out of 20 committees, about 15 have adopted such a rule.
Of course, we cannot compel all our witnesses to translate
themselves their papers, but the question is whether we distribute
their documents or not. About 15 standing committees decided not to
distribute them unless they are in both official languages.
I'm not proposing the adoption of that measure by the end of
June, but I think that at the beginning of the next session, next
fall, this committee should consider applying such a rule, similar
to what exists in other committees. Should a witness come here with
a paper available in only one official language, we would not
distribute it, period. Thus, it would be fair for everyone. I am
asking you to understand that. Some members are bilingual, but this
study from the Canadian Council of Grocery Distribution is very
detailed and it dates back to 1999. Does it mean that it was not
sent to the French speaking members of that organization?
I don't want to insist further on that point, but I feel that
we should think about it for the next session.
The Chair: Okay. Your point is taken. We have a
witness in front of us, and I anticipate everyone's
going to stay for a length of time now.
Mr. Conacher, please.
Mr. Duff Conacher: Thank you very much,
Madam Chair, and members of the
committee for this opportunity. I apologize that I
will be presenting solely in English, and our brief
is also only in English.
I am presenting only in English
because my French still needs a long time of practice.
My colleague, Daniel Martin Bellemare, who's done the
research for our brief and report today, unfortunately
has been very much caught up in a personal matter for
the past couple of weeks, so he was unable to join me
today. He is fully bilingual. So I do apologize.
We've been trying to finish this report. He continues
to receive new information and is in court with the
Department of Justice over an access to information
request for more information in this area.
We have put together what we have to date in this
report. Actually, I did not expect that you would
circulate the brief today. I thought it was the rule
that it would be translated before being distributed.
So I know everyone is seeing it for the first time. I
will go through the research results briefly, and also
our concerns and recommendations. Then I will welcome
As you can see, we've entitled the report “Revolving
Doors, the Undue Influence of Corporate Lawyers on the
Competition Bureau”. We have called it this because
the report details how the Attorney General of Canada
and the bureau commissioner have repeatedly appointed
lawyers from a few corporate law firms to assist or
represent the commissioner in competition law cases,
instead of using government lawyers. The same lawyers,
or their law firms, have also represented corporations
in competition law cases being decided by the bureau,
sometimes at the same time lawyers were representing
We detail seven cases in the report, and in case
you're wondering if seven cases is a significant
number, we feel it is very much so because there have
only been 20 to 25 cases in the Competition Tribunal
since 1986. So we're talking about one-third of the
total cases, where outside lawyers have been used by
the commissioner or appointed by the Attorney General
The first case is with regard to the Imperial Oil
takeover of Texaco Canada in 1989. At that time, a
lawyer practising for the firm Blake Cassels & Graydon
was negotiating a draft agreement for Imperial Oil
with the bureau commissioner at the time, Calvin
Goldman. At the same time, the same lawyer, Warren
Grover, was representing Commissioner Goldman before
the Competition Tribunal in a case against NutraSweet.
Before the tribunal, Imperial Oil was represented by
John Howard, also a lawyer from Blake Cassels &
So you can see that at the same time, lawyers
from the same firm—and in fact the same lawyer—were
representing the corporate client, but also working for
Also in 1989, in the second case we reveal the details
of, Commissioner Goldman filed an application to review
the merger of Asea Brown Bovery and other
companies. Westinghouse Canada, a party to that whole
review, was also represented by lawyers from the law
firm, Blake Cassels & Graydon.
In a situation that started in August 1987, the
Attorney General of Canada appointed another lawyer
from Blake Cassels & Graydon to assist Commissioner
Goldman in a case involving three Quebec rendering
companies. The Quebec company's case was still being
considered by the tribunal when the same lawyer from
Blake Cassels & Graydon, accompanied by two others,
represented two Ontario rendering companies in a merger
case before the Competition Tribunal.
Moving on to the fourth case, the commissioner filed
an application in November 1990 before the Competition
Tribunal against Southam Inc. with regard to a
previous merger. The commissioner was represented by
Stanley Wong, a lawyer with Davis & Company, a
Vancouver-based law firm. On March 25, 1991, the
commissioner filed a case against Laidlaw Waste
Systems, and Laidlaw was represented by lawyers
from the same law firm, Davis & Company.
The fifth case that we feel raises serious questions
about the conflict of interest rules and enforcement of
those rules in competition law litigation is a case
involving Loblaws and Provigo. In that case, the
Attorney General of Canada, in February 1995, appointed
Robert Russell, a lawyer with Borden & Elliot, to
assist then-Commissioner George Addy in
reviewing two mergers in the shipping container
industry. Mr. Russell represented the commissioner
until March 31, 1998. Then, a few months later, he was
back before the bureau representing Loblaws, as their
lawyer. So you can see why we've entitled the report
We also detail two other cases that we believe raise
serious questions about bias on the part of the
Commissioner of Competition in terms of the entire
situation that was created. The first case involves
abuse of dominance against D & B Companies of Canada
before the Competition Tribunal in 1994. In that
case, former Commissioner Goldman was representing
one of the parties, the complainant. D & B Companies
was represented by lawyers Randal Hughes and John Rook,
who had both represented the commissioner before
and worked for the government at various times since
Finally, our seventh case is in regard to the
appointment of Yves Bériault, a lawyer with
McCarthy, Tétrault, (Montreal), in 1987 by the
Attorney General, to represent the commissioner before
the tribunal in a case concerning the company, ADM
Agri-Industries. Mr. Bériault had also
represented the commissioner in 1987. The ADM case
was completed in August 1988—only five
months later—when Mr. Bériault was back before the
commissioner, the bureau, and the Competition Tribunal
as a whole, representing a client.
We are concerned about this ongoing revolving door
situation because we believe that when lawyers from the
private sector are representing large corporations,
they certainly very strongly oppose stringent
anti-trust enforcement action—especially action that
may be applied to their clients. But then they are
hired by the tribunal, by the commissioner, and we do
not believe they can be expected to litigate cases
aggressively before the tribunal, since those cases
will create precedents that will negatively affect
Overall, we believe that by appointing outside lawyers
routinely, as we feel has been done, to assist or
represent the commissioner, the Attorney General of
Canada and the commissioner are delegating the
administration and enforcement of the act to a few
lawyers representing some of Canada's largest
Finally, we believe these outside lawyers develop
close links with the commissioner and the staff, and so
learn how the commissioner develops cases in preparing
to litigate. They can then use that inside information
and their contacts to negotiate favourable settlements,
or obtain discontinuance of an investigation, on behalf
of their clients. Overall, we believe that such links
discredit the Competition Bureau.
Essentially, we see this as a classic tale of letting
the fox into the henhouse. We believe clear rules need
to be enforced to prevent this ongoing abuse of the
public interest. We agree with the commissioner's
testimony, when he was before this committee last
month, that he does not have the resources to
administer and enforce the act properly.
We agree fully, and we call on the Attorney General and
the commissioner to devote the resources to maintaining
a staff of government lawyers large enough to handle
all competition law cases.
Second is to strengthen conflict of interest rules for
litigation in competition cases.
Third is to use outside lawyers in very special
circumstances only, and if an outside lawyer is used,
to ensure that even the appearance of a conflict of
interest or bias does not occur in these cases where
outside lawyers are used.
You will see that the report is fully footnoted,
referring to all of the transcripts of the cases and
news releases from the commissioner. It's very
detailed, presenting all of the information, and we
believe we're presenting quite a compelling case, given
that seven out of 20 to 25 cases have used outside
We're very concerned by this practice overall and we
hope the committee will recommend the measures we are
calling on the Attorney General to take, and that the
Attorney General will undertake to solve this ongoing
problem that we feel discredits the bureau, brings the
administration of justice in this area into disrepute,
and, additionally, harms the public interest overall.
We are submitting this report for your information
as a formal petition to the Attorney General of Canada
and we will be considering taking legal action if the
Attorney General fails to take corrective measures.
I welcome your questions.
The Chair: Thank you very much, Mr. Conacher.
Mr. Antoine Dubé: Thank you, Mr. Conacher. Your paper is well
done. The summary is brief and very well presented.
We have heard here some witnesses, some lawyers. I don't know
if their arguments were sound, and I would like to know your
opinion about it. They said that this is a very complex law and
that, after all, there are only a few experts in the field of
competition rules in Canada. It would suggest that the situation
you described would not be that abnormal.
Of course, they were not talking about the same period of
time. Those are objections that I heard quite recently. Could it be
that such a situation is due to the complexity of the law and to
the fact that just a very small number of experts can be found in
that field in Canada?
Mr. Duff Conacher: I believe that is the case, not
being a specialist myself, and I know from talking to
my colleague, Daniel Martin Bellemare—who does
know both the bureau and the act inside and out and
all of the cases since 1986 inside and out—that it is
a very small bar, as they say.
But we don't see that as a reason, given that we are
documenting a pattern over the past 14 years of
systematically using outside counsel. We don't see
that throughout that time—and we feel very much that
this should have happened before 1993, so again we're
not resting it totally on this government—the Attorney
General of Canada could not have developed within
government a staff of lawyers. And it is important,
given the complexity of the law, to have a staff of
lawyers who are there long term, who learn the ins and
outs of the law entirely, and all the litigation and
the precedents, to ensure that the law is enforced and
that corporate lawyers, when they're appearing opposite
government lawyers, are not fully expert while the
government lawyers are very junior and just starting.
This problem should have been solved long ago. What
we're calling for is for it finally to be solved now.
The government has quite a giant surplus, as we learned
yesterday, and there's no reason some of it
shouldn't be dedicated to upholding very important
principles of the rule of law and the public interest.
The best way to do this is to ensure that there is a
staff of government lawyers dedicated to protecting the
public interest as opposed to allowing outside
corporate lawyers to revolve in and out with very
little, if any, cooling off period.
There are ethics rules for ministers, for example, and
senior public officials. They have to sit out for a
year or two before they can advocate back before their
department. Yet we have lawyers at the same time
representing both sides in these cases—or just a few
months after they leave—back before the same
commission they've represented for two or three
years, where they've been counsel to the commissioner.
It's simply not in the public interest to continue this
The Chair: Mr. Dubé.
Mr. Antoine Dubé: You are raising a good point. There are
other quasi-judicial tribunals within the government. Did you
compare the rules you're talking about with those of other courts
within the overall Canadian government? If so, could you provide us
some information about that? If you cannot give us that information
today, maybe you could forward it to us later.
Mr. Duff Conacher: We've not systematically
examined other agencies simply because of lack of
resources. However, from my experience working on
banking issues, we have had a bank accountability
campaign since 1994, and generally, I do have concerns
with the Office of the Superintendent of Financial
Institutions, which also brings in many outside
people from financial institutions on a temporary
basis—an interchange program or a secondment. But
that is the only other agency, I would say, that we
have any significant knowledge of.
Mr. Antoine Dubé: I find that your report is interesting with
regards to that overall case. I'm not a specialist in that field,
but in certain civil law cases, the problem I can see relating to
competition is that large enterprises—and it's deplorable—are
often inclined, without exerting a monopoly, to try to hold more
and more power to the detriment of small enterprises.
In my region, we only have small enterprises. Among the few
people from my riding who came to my office to discuss that issue,
most of them found the process too complex for them. From their
standpoint, it also takes too long. So, some people rather decide
not to sue or not even try to lodge an appeal. There were two
cases. In one of them, the plaintiff just failed before the
decision was made. I'm sure you will understand that, in his state
of mind, he was not interested to carry on.
Would it be possible to consider a sort of class action for
small enterprises facing similar problems? Would it be possible for
them to get together in order to introduce a joint action? Thus,
they could afford to wait and persist.
Second, would you favor a direct access to court, which does
not exists currently?
Mr. Duff Conacher: Thank you very much for
your question. I neglected to mention that we very
much hope... in a timely manner, because we realize—as
far as I know—that this is your last day of hearings
on this matter. My colleague Daniel Bellemare will
also be submitting a more technical paper. He simply
hasn't had time to complete it. But we have discussed
some of the issues, and we are in favour of the class
action and direction action to the court, as well as
other changes, which I won't go into, in part because I
simply don't know them well enough and he hasn't had a
chance over the past couple of weeks to brief me fully
on other measures that will assist in enforcement in
So I'm hoping you will receive that sooner than later,
perhaps not in time for this particular report but at
least to file it with the committee. We will also be
filing this report and a technical submission with the
Public Policy Forum, whom I'm sure you know has
been contracted by the Competition Bureau to hold
stakeholder and expert meetings over the summer. Their
deadline was actually yesterday, but it's now been
extended to the end of June—
The Chair: The first week of May until the end of
Mr. Duff Conacher: Yes, so we're going to be
making a submission there as well and submitting this
report to that process that the bureau has initiated.
The Chair: Thank you.
Thank you very much, Mr. Dubé.
Madam Jennings, please.
Ms. Marlene Jennings: First of all, Mr. Conacher,
thank you very much for your presentation. Your
apologies regarding making your presentation in English
and the fact that your brief was in English only are
really not necessary. I hope that in my comments on the
point of order regarding having documents available in
both languages I was clear that they were not
addressed to organizations such as yours. That's one.
Secondly, I would ask you to transmit my best wishes
to Maître Daniel Martin Bellemare and tell him that
I look forward to reading the technical brief he
will be preparing.
The issues that have been raised here of conflict of
interest and issues of ethics are very serious, as you
are well aware, and I do think it merits further
consideration. Whether it be by this committee or by
another agency, it definitely does merit further
I also appreciate the point you've raised that
whether or not it be due to lack of resources that have been
afforded the competition commissioner's office, that
office has been unable to develop its own cadre of
specialists. This is something that we do see in
other fields, to build on what Monsieur Dubé was asking
about. If we look in our criminal justice system, in
the Attorney General's offices and so on, we do have very skilled
prosecutors who are some of the top specialists, for
instance, on laundering of money, on criminal organized
So the possibility is there to
attract and build up the wealth of knowledge, and I
think that in order to deal with the revolving door, as
you call it, we have to look seriously at this.
Do you have any recommendations besides pointing out
that this is a situation that exists and has existed
for at least 10 to 15 years, and that it needs to be
corrected? Do you have specific recommendations, if
people are in agreement that, yes, it is something that
needs to be addressed, about how to go about doing
that? Even if we poured in $3 million, it
wouldn't be corrected immediately. Short-term,
Mr. Duff Conacher: Our first recommendation is
simply to stop systematically using outside lawyers
while corrective action is taken. Essentially we
feel that corrective action needs to be taken on not
only the resources side but also we feel the rules, the
Department of Justice's litigation guidelines, need to
be strengthened to prevent, even to the standard of the
appearance of, conflict of interest or bias in all
cases. That is the standard in the code for public
office-holders, and we very much feel that this
standard should be enforced. And it's a very high
The “appearance of” doesn't mean the appearance of
to the parties; it means to a reasonable person. And
this has been stressed in a few Criminal Code cases
involving public officials recently, such as R. v.
Hinchey and R. v. Cogger. In
these cases the Supreme Court of Canada has stressed
how important it is and how public officials should
expect to be held to a much higher standard, that most
individuals would consider severe in terms of the rules
and the enforcement of those rules in order to ensure
the integrity of the government. The Supreme Court
of Canada, in R. v. Hinchey, has
also expressed how important it is that the appearance of
integrity in government be maintained; otherwise
government cannot be a force for good in society
because it will not have legitimacy.
So if we initially just stop systematically appointing
outside lawyers, strengthen the rules and the
resources, and then ensure that if there is some case
where the technical knowledge of an outside lawyer is
needed in order for the commissioner to litigate
effectively, and that there be a cooling-off period for
that lawyer when the lawyer ceases working with the
commissioner, and also during the time period that the
lawyer or law firm—if it's an entire law firm—is
engaged with the commissioner, that their colleagues at
the law firm not be before the commissioner and
again have a cooling-off period... That may make it more
difficult to get outside lawyers, but that, again, just
points out how important it is to develop, as you said,
the cadre of government lawyers with this expertise. To
use the United States as an example, we see a very
stark difference in terms of enforcement and the
expertise and the resources devoted to this area.
Ms. Marlene Jennings: Thank you.
The Chair: Thank you very much, Madame Jennings.
Mr. Dan McTeague: Thank you, Madam Chair.
Mr. Conacher, it's a pleasure having you here today.
Mr. Duff Conacher: Thank you.
Mr. Dan McTeague: What you have explained here is
certainly not new to some of us on this side, and my
regards as well to Daniel Martin Bellemare. I
haven't seen Daniel in some time, although we did some
work before the Régie des rentes du Québec when a
number of well-heeled, well-trained pinstripes ensured
that I couldn't provide any testimony about the impact
of independent retailers and the current oligopoly that
exists in the distribution of gas in that province as
You've raised a number of questions and concerns—I
note the issue of resources—in questions to the
commissioner and to others. We have on several
occasions demonstrated that there is a dearth of
resources considering the amount of energy that is
being expended in areas like mergers. And I note that quite
a few of the seven cases do derive from merger
applications or near-merger applications.
I'm interested in your comments with respect to
ensuring that there is a perception of fairness and
that there is no doubt about there being no conflict of
interest. It's interesting that many of the lawyers
you've mentioned have in fact come before this
committee. Some have suggested a clear delineation
with respect to cease and desist provisions between
adjudication and enforcement, but have not spoken
obviously to the potential conflict of interest in
being on both sides of the equation.
So I think
we've really opened up the shell, perhaps even the
core, of concern that many of us have. There are too
few players making a number of assumptions about the
Competition Act, such that it is the preserve of
actually only a handful of individuals across the
I'd like to get your comment as to how you see we
could develop a budding school of competition lawyers,
short of what I've tried to do with several bills in
terms of ensuring a limited, albeit first, attempt at
a private right of action, at ensuring that people
have some modicum, irrespective of their scale or their
size as a company, of having a cease and desist
provision that provides them at least some time to get
some breathing space to protect themselves. Where do
you see the utility of this industry committee making
recommendations to the effect that we can encourage a
whole new generation, a whole new crop, of competition
experts, lawyers and economists, who might ultimately
help in the battle to ensure that there's fairness in a
system that is for now, and for people like yourself,
seen as unduly biased?
Mr. Duff Conacher: I think there will always be
difficulties in the private bar. Measures such as
cease and desist, a class action measure that allows
pooling of resources, and explicitly, although I don't
believe it's barred, allowing contingency fees as well
as a method—those can all encourage lawyers who are
serving smaller firms to develop an expertise and
provide that service to the smaller firm.
I don't think it's very difficult to initiate
something before the tribunal. All you need is six
petitioners, but then can you make the case? We
saw that recently with the gas retailers.
Mr. Dan McTeague: Yes, of course.
Mr. Duff Conacher: And Mr. Bellemare made a
submission. It was a so-called paper hearing. He made
a submission on our behalf on the proposed takeover by
Ultramar of a refinery. The local retailers were
complaining, but it ended up they did not even make a
submission, and because of lack of resources.
You always face that with the private bar. Of course,
the corporations have enormous resources and they can
support a corporate law firm developing the expertise
by just having them on retainer for competition issues
over the long term.
Any measures that allow pooling and make it easier
will help. I know from talking to Daniel that it
is very difficult for someone to make a living just
practising competition law, unless they're serving the
Mr. Dan McTeague: Mr. Conacher, I made a comment
with respect to an old bill before the committee, Bill
C-235, which I think was the genesis of a lot of
what we're doing today. I think it's fair to say that.
I made the comment that the status and the state of
defendant and plaintiff, given the scale of resources
available, is somewhat analogous to Godzilla versus
Do you see in any way, shape, or form the probability,
the need for... This is beyond contingency fees,
which is beyond the question of what we can do
federally, particularly in the province of Ontario, as
an example, where those are prohibited or proscribed.
I'm wondering if you would see some utility in the
notion not just of going to court, as they do in the
United States, but also of double and triple damages,
as they have in the United States, to ensure that the
bar is not slavish to those who can afford to pay for
them, even if there's a loss.
Mr. Duff Conacher: We generally feel that
government has been abandoning regulation over the past
number of years without really ever trying effective
To pick up your point in terms of penalties, we feel
that in corporations in particular there has always
been an incentive not to follow a regulation, whether it
is weak rules or lax enforcement or very small
penalties. If there's a loophole in any one of those
areas, it creates an incentive for a corporation not to
follow a regulation.
Having been trained by the leading specialists in law
and economics at the University of Toronto when I was
doing my law degree, I know very well that corporations
calculate any fine and multiply it by the chance of
getting caught. So if you have a $1 million fine and
you have a one-in-a-thousand chance of getting caught,
for the corporation it's a $1,000 fine. That's exactly
how they think about it. You can call Michael
Trebilcock or Ron Daniels or any other
specialist in law and economics and they will tell you
the same thing. That's the way corporations think:
So increasing penalties, increasing enforcement, and
strengthening rules are all needed, because if you leave
any weakness in any of the areas, then it creates an
incentive not to follow, to just take it as a cost of
doing business and continue violating the law.
Mr. Dan McTeague: My final question deals with the
reality. I would like to know if you see your
organization at some point fitting into the role of the
American Antitrust Institute, not only from a
legal perspective but also from a much wider concern.
There is nobody in this country to my knowledge who is
writing about the current state of competition in
Canada, beyond the think-tanks or beyond the various
esteemed professors of the economic divisions or legal
divisions of our universities. We don't have a truly
independent body that treats these issues case by case
or in a thematic way. I'm wondering if you see your
organization filling those very tall shoes in order to
provide members of Parliament and other public
officials an opportunity to take, on a constant basis,
the pulse of the effectiveness of our competition law.
Mr. Duff Conacher: I'm not sure whether Daniel
would like to be called an institute. It would be an
institute of one. We have talked with other consumer
groups and citizen groups generally. Other than a very
few ad hoc actions by those groups, we really are the
only citizen group that is examining these issues
closely, and we are only doing so because Daniel has
dedicated himself to this particular area of law
through his study years, both his master's of law and
his LL.B. It's unfortunate that he can't find
colleagues across the country.
Currently we're calling it our antitrust campaign. If
we can recruit a couple of others, then perhaps we'll
change the name to the antitrust institute. But I'm
not sure whether we'll be able to support it in the
Mr. Dan McTeague: Good luck. It's been a lonely
battle for a while.
Thank you, Madam Chair.
The Chair: Thank you very much, Mr. McTeague.
Mr. Conacher, I think we all agree that perhaps the
resources for the Competition Bureau need to be
strengthened. But I do think I should note for the
record that there is a wealth of expertise in the
lawyers who work within the Competition Bureau and who
actually do the investigation of these cases. But more
often than not they utilize outside lawyers
for the actual trial work. Am I correct? Is that
your understanding as well?
Mr. Duff Conacher: It is, although I would check
that out with Daniel, because he has done the research,
filed the access to information request, and reviewed
all of the cases since 1986. So he knows it in much
more detail than I do.
The Chair: One of your suggestions was that
outside lawyers should only be appointed when special
circumstances warrant. I'm not saying I disagree
with that, but more often than not that seems to be
when the government does appoint outside lawyers. We're
often criticized by a lot of special interest groups
for the lack of expertise at the trial level from the
lawyers within the government, which is why we go
outside. Your suggestion is that we shouldn't do that.
I'm just curious as to why you would take that
Mr. Duff Conacher: If you look at the pattern, it
is a true revolving door in that there's little
cooling-off period, and sometimes it's at the same time.
A law firm is one entity. There's no—
The Chair: Mr. Conacher, you're aware that there are
laws that govern conflict. Lawyers who are
admitted to the bar in the province of Ontario
are subject to conflict guidelines and professional
Mr. Duff Conacher: Yes, and we are considering
filing some of these cases with the Law Society
The Chair: With all due respect, I'm not sure I
agree with the rationale I've heard this
morning as to why those would violate that professional
conduct rule, being a member of that bar myself.
However, I do think your point is valid that there are
not enough resources available to the Competition
Bureau. I think this committee definitely agrees with
that. I think this committee also recognizes, or at
least I do, that there are cases where there may be the
necessity for outside counsel or outside expertise for
trial work, as an example, just because of people who
do that on a daily basis versus people who would only
set foot in a courtroom once a year. I think we have
to look at that.
I also think you raised some very valid points about
the strengthening of the bureau, and we hope
you'll continue to pursue the avenue that they should
have more resources. This committee has recommended
that in the past and will probably continue to
recommend that with the expanded authority
they have, the job they have, and the ability to do it
as we continue to move in this global economy,
they need to have more resources available to them.
We appreciate your appearing here today,
and we look forward to meeting with you again.
Mr. Duff Conacher: Thank you very much.
We will very much be supportive of changes to strengthen the
bureau throughout the process with the public policy
forum as well, as I mentioned, and we're hopeful that
your report and the report of the public policy forum
will be turned into legislation that will be enacted
sooner than later to address many of these problems.
The Chair: Thank you very
The meeting is adjourned.