Small businesses worry Canada’s Competition Act review will ignore them: CFIB

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According to the Canadian Federation of Independent Business (CFIB), small and medium business owners are concerned that Canada’s competition law review will ultimately ignore their problems in favour of bigger firms.

“The big issue we’re seeing is that consumers are not necessarily going to small businesses today,” said Michelle Auger, senior policy analyst with the CFIB. 

“They’re not going to shop at their local retailer. They’ve continued with their COVID habits, shopping on Amazon. They’re not necessarily making that extra effort to keep their dollar within their community.”

Even though small and medium-sized businesses represent 99.8 per cent of all Canadian companies and employ 88 per cent of Canadians, the latest survey from CFIB says those businesses feel the review will only benefit larger, more influential corporations.

Canada’s federal government maintains that the Competition Act is vital in encouraging a competitive, efficient, and adaptable economy and expanding opportunities for Canadian companies interested in world markets. 

The act also recognizes the role of foreign competition in Canada, ensuring small and medium-sized enterprises have equal opportunity while consumers receive competitive prices, according to government publications.

François-Philippe Champagne, Canada’s Minister of Innovation, Science and Industry, announced a review of the Competition Act in February 2022, and public consultations were launched that fall.

By the time consultations had wrapped in early 2023, more than 530 submissions had been received, including more than 400 from the general public. 

The COVID-19 pandemic exacerbated troubles, changed behaviours

Small and mid-sized businesses are still adjusting to pandemic-shaped buying preferences, supply-chain disruptions and consolidation, Auger said, adding that many companies closed their doors during the COVID-19 pandemic, said Auger.

Entrepreneurs were grateful for federal loan assistance during that period, but many had to take out additional loans to make ends meet, she said. 

Now, those loans are coming due.

Some businesses quickly pivoted during the pandemic, offering services like curbside pickup, but many struggled to adapt to the sudden surge in online shopping. 

Smaller businesses are often relegated further down in search engine results. Even when they are found, these businesses struggle to compete with large retailers and sites like Amazon, which offer perks like free shipping and discounts that they cannot, said Auger.

Keeping those dollars local matters, she added.

About 66 cents of every dollar spent at a small business stays within the community through wages, advertising and buying from local suppliers. Only 11 cents from Amazon does, said the CFIB.

That money shift starves small communities of local businesses that employ people, contribute to the tax base, and are most responsive to that community’s needs, they added.

Canada’s entrepreneurship rate has also fallen by half in recent decades, according to CFIB estimates. Combined, these two factors push industry out of smaller communities. 

More consolidation impacts

Data from Save Small Business, a grassroots stakeholder coalition, found that more than 50 per cent of small businesses compete against larger companies.

Roughly 60 per cent said their competitors are larger than they used to be, making it harder to compete.

In the same survey, close to 60 per cent said their businesses have less power to set prices and terms independently than they used to, while about 75 per cent felt more squeezed by large companies.

For example, at least one large printer manufacturer sends software updates that block the use of third-party cartridges in their machines. Customers are encouraged to register for an instant ink program, or cartridges for a new printer won’t work. Cartridges cannot be refilled, which hurts refilling and recycling programs.

Another example was a popular accounting software program advertised at $22 per month, but as additional services were added, it cost $50 per month. One customer reported being obliged to buy the entire accounting program to use the payroll package.

An independent movie theatre owner in Kingston, Ont. said Cineplex’s 75 per cent ownership of Canada’s theatres prevents him from playing the most popular movies in a timely manner.

“Cineplex gets first dibs on which movies they play and demands exclusive runs from the film distributors,” the owner said. 

“We have to wait until Cineplex is done playing a film until we can start showing the film. Of course, distributors would like their movies to be playing in as many cinemas as possible when the film is first released, but Cineplex has the power to influence them not to.

“When I look at American movie theatres that are comparable, they are playing the new movies we have to wait (up to eight) weeks to play. In the U.S., no single player is as dominant as Cineplex, so the film distributors can freely do business with independent cinemas, especially now that digital movie distribution gives greater flexibility of what plays where.”

Other examples include small bakeries contending with large producers offering “par-baked” products that customers like restaurants and grocery stores promote as freshly made.

In B.C., a retailer said a large Canadian online floral retailer has a long list of arbitrary penalties for mistakes in delivery, documentation, and stock shortages but doesn’t make restitution for errors on their end.

Lack of options makes switching challenging

More than 60 per cent of respondents to the CFIB survey said switching between banking, shipping, telecom, and insurance suppliers is challenging.

Telecom services, in particular, would benefit from more competition, said respondents.

Both the CFIB and Save Small Business cited inconsistent service quality in rural areas as the most significant factor.

“Some days getting any kind of service is a challenge,” said Terry Friesen, who runs a small bakery and catering business in rural Manitoba.

Friesen, who relies on the Internet and Facebook to promote her company, said it can be challenging when the Internet goes down in her area outside of Thompson, Man.

“We don’t have much choice when it comes to services out here,” she said, adding that she estimates her internet stops working weekly, sometimes for hours at a time.

“Switching is tough because we don’t have the options that they do [in Thompson].”

More than 60 per cent in the CFIB survey said they were concerned about the then-proposed Shaw-Rogers merger, which was granted in 2023.

“The merger just makes it worse,” Friesen agreed.

“The big companies already don’t care about smaller towns and rural people; they think it’s too expensive to run their internet [lines] up here. 

“Making the company bigger won’t get us reliable internet.”

Another frequent complaint was about deceptive marketing practices, in which the actual cost of services is buried deep within a contract’s fine print.

Lastly, small businesses were concerned about the cost of those services.

Most mobile, wireless and internet costs are also higher in Canada than in the U.S. or Europe, according to a 2021 CFIB study.

Canadian businesses hurt by financial services

Auger said that the rising insurance cost has become an unexpected issue in recent years.

Business insurance coverage is challenging to find and costly when available; commercial insurance costs rose six per cent in 2022’s third quarter, she said. 

It was the 20th consecutive quarter of hikes.

“Some people would argue that insurance is not one of these industries of consolidation, but our members would (say) there are not enough options for them,” Auger said. 

“And that goes hand-in-hand with (a lack of) competition.”

Financial services also raise competitive issues for business owners. Canada’s banking industry is more consolidated than most, with only six major brands. 

That lack of competition contributes to higher prices for banking services and credit cards and more opacity in deciphering the actual service cost.

“Credit card fees are a prime example of deceptive marketing,” the owner of a small business in British Columbia told the CFIB in a recent report. 

“We get quoted a set of fees only to find out that those fees cover the smallest percentage of credit cards in circulation. 

“For example, 1.4 per cent on Mastercard and 1.45 per cent on VISA ends up being over two per cent to 2.3 per cent because of the countless variations of VISA and Mastercard that are at different fees.”

Canada also has a shortage of financial technology, or fintech, companies which focus on responsive innovations, unencumbered by layers of decades-old legacy technology, said Auger.

More fintechs would mean more effective service for Canadian SMBs.

And then there’s Amazon

Amazon’s rise has impacted Canada’s small and mid-sized businesses more than any other factor.

According to Statistics Canada, between 2018 and 2020, Canada’s online spending rose nearly 50 per cent to $84.4 billion. In 2022, Amazon Canada had net sales of U.S. $11.51 billion.

Many small businesses feel forced to set up an Amazon profile, despite 80 per cent of CFIB members reporting that e-commerce is not a significant revenue generator for their business.

In the November 2023 CFIB report The Challenges of Competing in a Digital World: The Experiences of Canadian Small Businesses With Amazon, retailers allege Amazon encourages consumers to buy its products over those offered to small businesses. 

When a small business’s product becomes popular on Amazon, the mega-site begins offering it, too.

“Once Amazon has started selling a popular product in competition with a small business, many of our members have claimed that it is much harder for them to obtain that product from their supplier, and those suppliers are also prohibiting SMEs from selling on Amazon Marketplace,” the report states. 

“Small business owners who continue to offer that product have received threatening legal notices from their suppliers indicating that they can no longer sell such brands via Amazon’s marketplace.”

The CFIB report further alleges that Amazon penalizes third-party sellers for offering lower prices elsewhere by lowering them in search results, essentially hiding them from customers. 

Businesses also report having no customer service assistance and little ability to communicate with their customers.

“There needs to be more fairness,” Auger said. “Small businesses want to be found online; they want to be there, but it needs to be fair.

“The way it is now is it’s Amazon or nothing and pay the fees.”

Merchants with Shopify have told the company the same thing, said Shopify CEO Tobi Lütke, so they offer an alternative.

“The internet is the world’s largest city, and Shopify is building its commerce infrastructure,” said Lütke.

“For our merchants, every new stage of business growth brings a whole new set of challenges. [We believe] Shopify solves more of those problems than any other platform out there.”

The Ottawa-based e-commerce platform allows entrepreneurs to sell their goods online and in person with their point-of-sale systems, said  Lütke.

That doesn’t mean Amazon can’t be suitable for some small businesses, he added.

“When approached as a resource, Amazon can actually help entrepreneurs make money online. Under the right circumstances, selling on Amazon is worth it for Shopify store owners.”

What needs to come out of the Competition Act review

Save Small Business survey respondents said Ottawa must do more. 

Roughly 80 per cent disagreed with the statement, “The government is already doing enough to ensure my business has a fair chance to compete on a level playing field within my industry.” 

Sixty-three per cent felt the Competition Bureau should be more active in preventing mergers in their industry.

The CFIB said the Government of Canada’s reform efforts should include acknowledging that SMBs often find it challenging to comply with regulations. 

According to the CFIB, reducing the regulatory burden on SMBs leaves them more time to focus on business growth.

The federal government must also monitor business mergers and “serial roll-ups,” which occur when a company buys up multiple small competitors.

Many SMB owners have told the CFIB that the Competition Act must be delicately reformed to prevent potentially harmful serial acquisitions without damaging potential opportunities.

In its submission to the Competition Act review, Social Capital Partners, non-profit focusing on designing and implementing diverse financial tools,  urged the Canadian government to tackle problematic acquisitions. 

Social Capital Partners highlighted technology firms and said many acquisitions are focused on preventing competitors from reaching their full potential.

“These types of acquisitions, while attractive to some entrepreneurs, act as a roadblock to growth and innovation, particularly for Canada, as the majority of buyers are foreign-owned firms,” the report states. 

“This has follow-on impacts on future Canadian innovation as it reduces Canadian control over our intellectual property.”

The report states that those consolidations make life more difficult for independent small businesses while offering little evidence for consumer benefits. 

However, consolidations do enable more aggressive spending on marketing and staff recruiting and can lead to a greater degree of influence on sector-based associations and regulations. 

According to the report, roll-ups result in an uneven playing field for independent operators and customer confusion.

A Canadian economy shaped by a competition policy framework supporting growth through innovation instead of acquisition is the solution, Social Capital Partners said in its submission. 

Policies designed to create national champions that are focused on exports have instead concentrated domestic sales and markets, they added.

The government of Canada’s What We Heard report from the review said they heard those concerns.

“Many individual respondents stated that they felt that the Act is not being enforced effectively and that large corporations are gaining too much control over the market, and its essential goods and services,” it reads.

“They further believe that the government should have the power to regulate mergers and acquisitions that surpass a certain percentage in market share to ensure that no individual company gains too much power in the marketplace.”

Specific recommendations from advocates

Social Capital Partners said the Competition Bureau could take several steps to protect Canadian SMBs from potentially harmful mergers, including upgrading the pre-merger notification system, creating an additional, publicly available merger filing system, and lengthening the merger review period.

They added that the Competition Act needs improvement in several key areas, noting that information-gathering powers must be expanded, and production capacity and workers’ rights are mostly ignored.

“More remedies to prevent serial acquisitions and abuse of dominance must be introduced,” said the CFIB, to prevent large businesses from buying up smaller businesses at will to control the local market.

“The federal government must act to prevent harmful mergers in areas with already limited competition.”

The CFIB would also like expanded civil and criminal penalties for anticompetitive conduct, especially for individuals, and improved guidelines and resource support.

The federal government could provide better education and support for SMBs impacted by deceptive marketing practices. Education should also be expanded to promote the Competition Bureau’s role, as many Canadian SMB owners are unaware of it.