News / Canada

Watchdog's bread price fixing probe 'shocking' and 'bizarre,' analysts say

Various brands of bread sit on shelves in a grocery store in Toronto on Wednesday Nov. 1, 2017. Investors in major Canadian grocers appear unfazed today after the Competition Bureau raided the offices of certain companies in a criminal probe tied to alleged price fixing of some packaged bread products. THE CANADIAN PRESS/Doug Ives

Various brands of bread sit on shelves in a grocery store in Toronto on Wednesday Nov. 1, 2017. Investors in major Canadian grocers appear unfazed today after the Competition Bureau raided the offices of certain companies in a criminal probe tied to alleged price fixing of some packaged bread products. THE CANADIAN PRESS/Doug Ives

TORONTO — Allegations of price fixing in the bread aisles of major grocers are "shocking" and "bizarre," analysts said Wednesday as more companies came forward to reveal they are co-operating with an investigation by the country's competition watchdog.

Grocer Sobey's Inc. confirmed Wednesday that the watchdog was present at its offices in connection with search warrants regarding pricing related to commercial bread dating back to 2001.

"They arrived in our Stellarton and Ontario offices (Tuesday)," said spokeswoman Jacquelin Corrado in an email. "We are co-operating to support the investigation and have advised employees internally of the process underway."

The Competition Bureau said late Tuesday that the Ontario Superior Court in Ottawa granted search warrants "based on evidence that there are reasonable grounds to believe that certain individuals and companies have engaged in activities contrary to the Competition Act." 

Spokeswoman Marie-France Faucher said the bureau was conducting the searches and gathering evidence to determine the facts, but that there has been no conclusion of wrongdoing at this time and no charges have been laid.

Faucher added that she could not reveal more details, as the bureau is required to conduct investigations confidentially. The application and search warrants are also sealed.

Canada's Competition Act prohibits agreements that "prevent or unduly lessen competition or to unreasonably enhance the price of a product."

That could include agreements between competitors to fix prices, or to restrict production of a product by setting quotas or other means that would be considered cartel activities. Penalties for price fixing could include fines of up to $10 million, imprisonment to a maximum term of five years, or both.

However, the bureau says price-fixing conspiracies are, by their nature, difficult to detect and prove.

"Suspicions and evidence of identical prices are not enough to prove a criminal offence," the bureau says on its website.

The country's other big grocers, Loblaw Companies Ltd. and Metro Inc. have said they are fully co-operating with the probe but would not comment on whether their offices were searched.

George Weston Ltd. (TSX:WN), which owns a controlling stake in Loblaw as well as the Weston Foods bakery, has said it is co-operating with investigators, as have Canada Bread Co. Ltd., which is owned by Mexican company Grupo Bimbo, and Walmart Canada.

Canada's major retailers have many measures in place to guard against price fixing, a practice that prevents or weakens competition through agreements to set prices at artificial levels, said retail analyst Bruce Winder.

"It seems a little bizarre, because all the grocers and all the big companies have fairly strong policies, compliance programs and training for employees not to do this," said Winder, the co-founder and partner of Retail Advisors Network.

John Williams, a partner at retail consulting company J.C. Williams Group, called the probe "shocking" given that Canada's major retailers are governed by very well-defined codes of ethics.

He also noted that the bread industry has been in "turmoil" as consumers look for healthier or artisan versions of the food staple, pushing producers to innovate with new varieties to stay competitive.

"It now has almost become a fashion item... Huge aisles of white bread are slowly shrinking," Williams said.  

Bread also remains a "high-profile item that grocery stores use to drive people in, much like milk," said Winder.

Meanwhile, the sector has faced intensifying competition, with the entry of discount retailers such as Walmart into the grocery space and Amazon's recent purchase of Whole Foods.

"The margin pressure in groceries is astronomical... Competitors are looking for anything to try and get an edge," Winder said.

The Competition Bureau has been cracking down on pricing practices in Canada in recent years.

In February, the watchdog moved to sue Hudson's Bay Co. (TSX:HBC) over alleged deceptive pricing practices, an accusation the retailer denies.

The bureau also conducted an investigation into e-book pricing, and reached a deal in 2014 with four major e-book publishers that forced them to drop their practice of stopping retailers from offering discounts on the digital reading material.

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