The prime minister and his cabinet have joined a production line of academic theorists about the nature of corporate competition in the grocery business. They want tougher competition legislation to give more powers to Ottawa’s competition enforcers to tackle and even break up the supermarket chains.

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Terence Corcoran: Let’s clean up the Kleenex grocery myths  Back to video

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There was no better demonstration of the unsupportable nonsense behind the movement to blame grocery “corporate greed” for Canada’s inflation and supply chain problems than the flap that developed around the recent decision by Kimberly-Clark, the global tissue paper company, to stop selling Kleenex tissues in Canada.

As National Bank analyst Zachary Evershed and his team noted, the Kleenex decision was not news in an industry that has been struggling with shifting economic circumstances. But it was a big deal among academic theorists on competition who held that Kleenex, with 16.2 per cent market share, was driven out of Canada by the grocery chains. Using their market power, the grocery companies use aggressive strategies and lower-price store-brands such as President’s Choice to kill competition.

On the CBC Radio show The Cost of Living, Walid Hejazi, professor of International Business at the University of Toronto, said the loss of Kleenex demonstrates that “when you have more concentration in the retail sector, what ends up happening is you get less variety and you get higher prices.” He was followed by Vass Bednar, adjunct professor in public policy at McMaster University, who said foreign companies “get out of Canada altogether” because they can make more money somewhere else. “Kleenex doesn’t want to tough it out in Canada,” she said, because “it’s not worth, literally, the cost.”

Bednar supports Liberal plans to expand competition enforcement powers as a “big” move that is long overdue. Also supportive is David Soberman, professor of marketing at the University of Toronto’s Rotman School of Management. In a recent commentary, he said the Kleenex decision is the product of “insufficient competition in the Canadian grocery sector.” He added that “thought should be given” to breaking up some of the big chains.

The above academics apparently did not spend much time looking at the history of the tissue market and current developments in an intensely competitive market filled with rapid and unsettling change.

Kimberly-Clark will continue to sell other paper products in Canada, just not home-use Kleenex, leaving the current leaders in the business, the makers of Scotties and Royale, with an opportunity to grow their home tissue market shares. Kruger Products, which makes Scotties, holds 35.5 per cent of the retail market while Irving, which makes Royale, holds 15.9 per cent.

First, though, an historical point of interest. One reason Kleenex, the marketing pioneer of tissue paper, lags Scotties in Canada goes back to 1995-7. That’s when Kimberly-Clark was forced to break up its merger with Scott Paper following anti-trust decisions in the United States and Canada. Ottawa’s Competition Bureau claimed the merger would “likely lessen or prevent competition substantially in the consumer markets for baby wipes, facial tissue and paper napkins, and in the commercial markets for facial tissue, paper towels and wiping products.”

The company that bought control of Scotties in Canada from Kimberly-Clark as part of the forced sale was Kruger Products Inc., the privately controlled Canadian company that now accounts for the largest share of the Canada personal paper products market. Last month, within days of the Kleenex announcement, Kruger issued a self-aggrandizing statement saying that its products, including Scotties, are “made in Canada and here to stay.”

In short, competition policy circa 1997 — not grocery chain greed circa 2023 — lifted Kruger and Scotties to market dominance over Kimberly-Clark and Kleenex.

Kruger’s growth continued last year when it completed a major expansion at its Sherbrooke, Que., operations. The company said a second project in 2024, valued at $351 million, “will deliver on the company’s vision to make Sherbrooke a major premium-quality tissue product manufacturing hub in North America.”

The tissue market is continental, not a national sport manipulated by grocery chains. Costco buys its Kirkland tissue in the United States, although the actual makers of such “house brands,” including Loblaw’s Presidents’ Choice, are largely unknown. Could the maker of Loblaw-owned President’s Choice products include another Canadian player in the tissue market, such as Cascades Inc., which operates three paper-making plants in Quebec and six in the United States?

Cascades has also been dealing with competitive and market-changing developments. After Cascades announced two plant closures last April, the National Bank’s Evershed notedthat the North American tissue industry segment “has faced a plethora of challenges over the last 12 months, as measured by the readjusted goal posts for the segment in the face of a significant ramp-up in costs and lower than expected volumes.”

That reflects what Kimberly-Clark said when it made its Kleenex announcement. The company is operating in a “constrained environment” that prompted its decision. Another constraint on Kleenex would be that Kruger just launched Bonterra, a new “sustainable” brand of tissue products for the Canadian market.

In summary: The dominant shaper of the tissue supply chain is the competitive behaviour of the papermakers. Grocery chain purchasing policies, which favour lower prices, are important contributors to the shape and size of the tissue market — but as enhancers of competition.

The editor of Tissue World Magazine summarized the publication’s latest expert reviews of the transforming North American tissue market. The evidence suggests “we may be on the brink of fundamental changes in the region, dominated by the consumers who use far and away the most tissue per capita.”

To claim, as our competition theorists do, that corporate greed at the retail level drove Kleenex from the market, is to be guilty of three fundamental failures: lack of analysis, lack of evidence, and unsupportable theory.