Metro, Sobeys say they didn't violate Competition Act as bread price-fixing story unfolds

Two of Loblaws' biggest rivals in the grocery business say they are fully co-operating with an investigation by Canada's Competition Bureau into allegations of fixing prices for baked goods, and add that they don't believe they have run afoul of Canada's competition rules.

On Tuesday, Loblaws said it had participated in a scheme to set the price for certain baked goods for more than a decade, but would avoid punishment in the case because it had tipped off the competition watchdog once upper management became aware of it.

Loblaws and bakery parent George Weston Co. were both involved in the practice, whereby baked good makers and grocery retailers would raise prices on certain items in conjunction with each other. 

"This is a difficult matter and clearly something that never should have happened," said Galen G. Weston, the CEO of both companies, said in a statement Tuesday.

Competition lawyer Oliver Borgers at McCarthy Tétrault said the grocery business is notoriously combative, which is why allegations of price-fixing are so rare. "It doesn't happen often and it's very hard to detect," he said in an interview. "They are all fighting for the same consumer and it's a highly competitive environment [so] one would expect there to be fierce competition."

But that may not have been the case with baked goods, the Competition Bureau says, after executing search warrants at the offices of many companies this summer. While no charges have been laid, the bureau says it is still investigating.

Unlike some other grocery products, Borgers said bread does lend itself to being manipulated because it is so ubiquitous. "Collusion can occur in many products, especially the more similar they are, the more commodity based they are," he said.

The bureau has yet to name any other companies involved beside Loblaws and Weston, but many of the other big grocery rivals have already come out to state their innocence.

"Based on the information processed to date, we have found no evidence that Metro has violated the Competition Act," a statement from Montreal-based grocer Metro Inc. said Wednesday. "We do not believe that the bureau's investigation will have a material adverse effect on the corporation's business, results of operations or financial condition," the statement said, adding that the grocer is "fully co-operating" with the bureau, as well as launching its own internal investigation.

Nova Scotia-based Sobeys was singing a similar tune, saying it too is co-operating fully with the competition watchdog. "At this time, Sobeys does not believe that it or any of its employees have violated the Competition Act.  Any assertion of an industry-wide price-fixing arrangement has not been proven," Sobeys said.

Bakery giant Canada Bread noted in a statement on Wednesday that the company operates "with the highest ethical standards and is co-operating fully with the investigation." 

"Neither the company nor any associates have been charged with any offences," Canada Bread said, adding "we continue to remain focused on making and delivering high-quality products that our customers and consumers rely on every day."

To make amends to customers, Loblaws is offering customers a $25 gift card if they sign up on a website. But to shopper Shirley Hutchison, shopping at a Toronto area grocery store on Wednesday, that's a hollow gesture. "I feel cheated that they've been charging us more for the bread," she told the CBC. "We're getting cheated. It's not right, it's not fair." 

Toronto-Dominion bank analyst Michael Van Aelst, who covers Canada's grocery sector, said in a research note on Loblaws stock Wednesday that financial penalties are only part of the concern for any companies involved.

"Reputational damage is always a concern in these cases, though most competitors are being investigated and at least Loblaw was the whistle-blower," he said. "We are not anticipating a material shift in consumer traffic patterns."