Loblaw, Weston bake the numbers, burn consumers in price-fix scandal

Most Canadians were stunned and dismayed to learn that the country’s leading grocer was caught in a price-fixing scheme with bread-maker George Weston Ltd., which is owned by the same company.

The scheme lasted from 2001 to 2015. As a result, Loblaw Companies Ltd. fired several people and gave $25 gift certificates to millions of Canadians who may have been affected.

The Competition Bureau, in return, offered not to lay criminal charges. That’s a precious gift for a company for whom image and brand — think the trusted President’s Choice products — is everything.

In layman’s terms, what happened between Loblaw and Weston was inexcusable.

For 14 years, Weston’s bakery products pricing gave Loblaw an unfair advantage, while disadvantaging other food retailers. The strategy was not so much about getting more money out of consumers, at least not recently, as about managing margins.

Bread is often a loss leader, an item sold at a loss to increase traffic in a store. In fact, according to Statistics Canada, a standard loaf of bread is cheaper today than it was in 2013.

A decade ago, the price of some bakery items doubled in just a few months. In 2007 and 2008, commodity prices were driven up by the growth in ethanol production. The price of a bushel of wheat reached unprecedented levels. Higher input costs and global demand were blamed for the enormous price hikes. Many countries were affected. But the market cooled and bread prices remained high.

Loblaw did the right thing by coming forward but questions have cropped up:

  • The duration of the scheme: For 14 long years, two of the largest players in the business altered market conditions. Many wonder why it took so long for the company to realize it had a problem. Quality assurance and ethics are central to most businesses, including Loblaw. So it’s difficult for Canadians to believe the company had only just become aware of the issue. The case for plausible deniability at Loblaw is weak at best.
  • The people involved: It’s likely that over several years, more than just a few employees were part of this. Numerous employees have come and gone, moving on to other positions, probably in the food industry. The movement of human capital, over time, may have created an industry-wide problem. That’s scary.

We can conclude that Loblaw’s coming out is just the beginning. The Competition Bureau is also investigating Sobeys, Metro, Walmart, Giant Tiger and bread producer Canada Bread.

The $25 gift card Loblaw is offering is just window dressing. What’s at stake is consumer trust and how the industry can maintain its social licence. Without this, growing revenues, supporting communities, innovating, partnerships, loyalty programs all become more challenging.

Independent grocers have the most to win out of this mess. They just can’t do what Loblaw and Weston admitted to doing for 14 years.

But it’s doubtful that Canadians have the stamina or the discernment to punish the company by withholding their shopping dollars. Habits are hard to break, especially with food.

Still, Canadians now have reason to doubt the grocery industry.

However, there is hope. The fact that a staple like bread is under Competition Bureau review gives optimism for change.

No matter how complicated the situation, phrases like “price-fixing’ add clarity. Canadians understand that it is wrong, plain and simple. Let’s hope the industry understands, too.

Sylvain Charlebois is senior fellow with the Atlantic Institute for Market Studies and dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University. This article was distributed through Troy Media.

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