Description: The Competition Bureau is running into trouble in its ongoing investigation of Loblaw’s pricing practices. The problem seems to be that Loblaw’s suppliers seem reluctant to talk to the regulator for fear that Loblaws might retaliate against them. One thing the Bureau may be examining is Loblaw’s controversial practice of asking for 1.45 % discounts on bills from its suppliers. This cut, which has been in place since September, has obviously made a lot of suppliers unhappy.
Date: October 17, 2016; updated October 18, 2016
1) The food business is known for tight margins. If you were the chief financial officer at one of Loblaw’s major suppliers, what would be your reaction to the 1.45% cut imposed by Loblaws?
2) The article discusses Loblaw’s acquisition of Shoppers Drug Mart. Appendix A of Wiley’s Financial Accounting: Tools for Business Decision Making contains specimen financial statements for Shoppers. What size of an impact would a 1.45% cut on suppliers’ invoices have on Shoppers’ gross profit?
3) Why do you think that suppliers are reluctant to speak with the Competition Bureau on these matters?