Price fixing story is back on the front page.

June 26, 2023
/ SKUBlog
/ By Susan Sipos

I will preface this newsletter by saying I am not a lawyer. The issue we are going to discuss is a complicated one and anytime you have questions about it, you should seek advice and guidance from a person qualified to interpret and understand Canadian laws.

That being said, I am sure many people have opinions about the news this week. Canada Bread has agreed to pay a fine of $50,000,000 in relation to two wholesale price increases that occurred more than a decade ago, one in 2007 and again in 2011.

We have been sharing definitions to terms specific to our industry each week. When people understand each other better they can have more productive discussions and business relationships. Our practice has been to create our own definitions, but we will default to the proper legal documents to define Conspiracies, agreements or arrangements between competitors. The following is the text as it appears in the Competition Act (R.S.C., 1985, c. C-34):

45 (1) Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges

(a) to fix, maintain, increase or control the price for the supply of the product;

(b) to allocate sales, territories, customers or markets for the production or supply of the product; or

(c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product.

Conspiracies, agreements or arrangements between competitors

This has been complicated

Just last week I was talking to a couple of people in the industry and we were wondering if this issue would ever be resolved and what the outcome would be. It has been a long time since Loblaw Companies and Weston Bakeries came forward to disclose there had been activities in the bread category that would be of interest to the competition bureau.

Since that disclosure both Canada Bread and Weston Bakeries have been sold. No doubt this complicated the investigation and lengthened the timeline for decisions. Canada Bread was owned by Maple Leaf Foods which was controlled by some members of the McCain family and Weston Bakeries was controlled by the Weston Family (who also own Loblaw Companies Limited). Canada Bread was sold to Grupo Bimbo in 2014 and Weston Bakeries was sold to FGF Brands in 2022.

In the news release from the government of Canada, they state they executed search warrants against Weston, Canada Bread, Loblaw’s, Metro, Sobeys, WalMart Canada, Overwaitea Food Group, Giant Tiger and Maple Leaf. No doubt there have been significant changes in management at different levels within these businesses.

Competition Bureau

The impact going forward

Our food and beverage industry will be in the news again and not for good reason. We have been inundated with stories about inflation, code of conduct and now the price fixing story is back on the front page.

There will be a heightened sense of awareness about this issue between suppliers and retailers. As there should be. Consumers have an expectation we live in an economy where businesses compete as opposed to collude. Damage has been done and only time and fair competition will move the needle. For some, the skepticism will always be there.

Unfortunately, this issue restricts many conversations which could be within the confines of the law. With many changes in cost of goods, it has been difficult for suppliers to get price increases approved. This will probably restrict these conversations even more.

In the news release from the Government of Canada the last line states “The Bureau continues to investigate alleged price-fixing by other companies, including Metro Inc., Sobeys Inc., Wal-Mart Canada Corporation, Giant Tiger Stores Limited, and Maple Leaf Foods Inc.” Given the size of the fine against Canada Bread, if they have proof of wrongdoing by retailers, it is likely we will see more fines. Which will result in more news stories.

Whether you support the Weston/Loblaw strategy of coming forward or not, it does appear to have worked for them. They did weather the storm of discontent and offered consumers $25 gift cards in 2018. In exchange for their full cooperation, they received immunity from prosecution. Perhaps other companies will see this in food and beverage or other industries if they know of improprieties and come forward. Weston and Loblaw have avoided the fines and perhaps the damage to company value.

It was reported in the Financial Post and other media outlets that Maple Leaf emailed a statement about Canada Bread. According to Maple Leaf, “We are not aware of any wrongdoing by Canada Bread or its senior leadership during the time that we were a shareholder, we have acted ethically and lawfully at all times. We are not aware of and have never engaged in inappropriate or anti-competitive activity, and we will defend ourselves vigorously against any allegation to the contrary.” So, there could be more fireworks between Maple Leaf and Grupo Bimbo.

Canada Bread settles years-long price-fixing allegations, to pay $50-million fine

The price fixing in bread, rolls, english muffins and tortillas happened over a number of years. We see the fine against Canada Bread and perhaps others will be implicated. Loblaw did issue the $25 gift cards to consumers who registered in 2018. One consideration in all of this is the prices might have been artificially inflated and they were never reduced to the appropriate level. The bread companies and retailers continue to sell bread with these (potential) artificial price increases built in. Although it seems outside the mandate of the competition bureau, it is surprising consumers have not complained and worked to influence the guilty parties to eliminate any proportion of the increases that was not justified. It is a complicated issue as a proportion or all of the price increase probably was warranted with increased costs for ingredients, packaging and labour.

Everyone working in the industry needs to understand the law and how it applies to them. Suppliers should make sure, through their industry association or their own resources, they know how the competition act impacts their business. At every level people should be trained about what is legal and what is not. The clause we included above is clear and people should be familiar with it. Unfortunately when people see this in one category they might jump to the conclusion it is happening elsewhere and be more vigilant to find it.

If you have any comments you can always send me an email peter@skufood.com or call me at (902) 489-2900.

Peter

Chinova Bioworks growing rapidly

Food processing is complicated and consumers are more interested in where their food comes from and what is in it. PEI company Chinova Bioworks appears to be in the right place at the right time. Their natural preservative labelled as ‘mushroom fiber’ is being used in non-alcohol beer and vegan cheeses as a preservative. Both of these categories are experiencing tremendous growth. The company is growing to meet the increasing demand for their products.