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At least $1.50 has been artificially baked into the price of a loaf of bread during a 16-year-long bread price-fixing conspiracy involving the country’s largest bakery wholesalers and grocery retailers, the federal competition watchdog alleged in court documents released Wednesday.
The Competition Bureau alleges that Canada Bread Company Ltd. and George Weston Ltd.’s senior officers communicated directly to raise prices at least 15 times — with an average increase of 10 cents per loaf passed on to consumers between about 2001 and 2016. The bureau believes the behaviour may have continued into 2017.
According to previously-sealed information to obtain documents, the pattern became colloquially known as the 7/10 convention — with an average seven cent price increase at wholesale and 10 cent price bump for the consumer in stores, resulting in an average margin increase of three cents per loaf for retailers.
The conversations around raising prices on baked goods including bread, buns, bagels, naan, English muffins and tortillas started months before the increase would hit the shelves, according to the documents.
After agreeing on a price increase, the suppliers allegedly met individually with their retail clients — including Loblaw Companies Ltd., Walmart Canada Corp., Sobeys Inc., Metro Inc. and Giant Tiger Stores Ltd. — to get their approval for the price hike. The retailers agreed to the boost on the condition their competitors would follow suit and demanded that the suppliers actively manage the process to ensure all retailers were co-operating, the documents said.
Overwaitea Food Group Ltd., a B.C.-based retailer, is not a target of the investigation, but may have relevant records to the inquiry, according to the documents.
“The alleged conspiracy was a deliberate attempt by management of Canada Bread and Weston Bakeries, along with the retailers, to suppress competition at both the wholesale and retail level and thereby increase the wholesale and retail prices of fresh commercial bread in Canada,” wrote Simon Bessette, a senior competition law officer with the Competition Bureau’s cartels and deceptive marketing practices branch.
The watchdog said it was approached by informants from Loblaw Companies Ltd. in 2015 and filed the affidavit late last year with evidence it had collected so far in its investigation in order to convince a judge to grant it search warrants, which it executed on Oct. 31. No charges have been filed and none of the allegations have been proven in court.
In the competitive grocery market, retailers are often willing to take a loss on certain staples, such as bread, in the hope they can attract customers with low prices and keep them in stores to fill their carts.
However, experts say bread is an easy target for collusion because of the small number of companies involved: two major wholesalers and a handful of national grocery chains.
But between 2001 and 2015, the consumer price index for bread, rolls and buns rose 96 per cent jump, according to Statistics Canada. During that same time frame, CPI for all food purchased from stores increased about 45 per cent.
The Competition Bureau believes the wholesalers and grocers committed indictable offences under the Competition Act.
The behaviour likely continued into November 2017, despite the bureau starting its investigation months prior because the informants were obligated to keep their co-operation confidential, said Bessette.
“Consequently, other participants in the alleged cartel continue to operate as if the cartel were still functioning,” the document reads.
In December, Loblaw and George Weston admitted they sparked the investigation when they approached the watchdog after becoming aware of an allegedly industry-wide arrangement to co-ordinate some bread prices.
The two companies received immunity in exchange for their co-operation.
Canada Bread issued a statement shortly after the documents were released saying it first learned of the claims in December but was not allowed to discuss them until the information was made public.
It noted that the George Weston and Loblaw informants admitted to inappropriate conduct and accused “certain former Canada Bread executives” dating back to 2001 “while Canada Bread was under previous ownership.”
Maple Leaf Foods sold its majority share in Canada Bread to Mexico’s Grupo Bimbo in 2014.
“Maple Leaf has no knowledge of any activities taken by Canada Bread that would have contravened the Competition Act,” said spokesman Scott Bonikowsky in a statement. The bureau has not approached the company, he added.
“The allegations do not reflect the Canada Bread we know,” Canada Bread said Wednesday.
“Our current leadership takes these allegations very seriously and are actively investigating to take the necessary measures.”
Metro Inc. said Wednesday that there is nothing in the documents that indicate the company broke competition laws. It added that after the Competition Bureau executed warrants at its offices on Oct. 31, the company launched an internal investigation.
“Based on the information processed to date, we have found no evidence that Metro has violated the Competition Act.”
Sobeys remains confident in its position that neither it nor any of its employees violated the act, said spokeswoman Cynthia Thompson in a statement, adding the few employees named in the documents are valued team members.
The company constantly communicated with suppliers to allow them to purchase goods at the lowest possible cost and offer competitive prices to customers, she said.
“It’s typical in the grocery industry, and I would say broad retail industry, for employees to regularly monitor and spot check pricing in the marketplace to ensure competitive pricing to customers.”
Giant Tiger also reaffirmed its position that it does not believe the company or its employees violated the act, it said in a statement.
“We look forward to seeing the results of the Competition Bureau’s complete investigation.”
A Walmart Canada spokesperson declined to comment on the issue “as it is before the courts”.
Despite the challenges from its competitors, Loblaw spokesman Kevin Groh said Wednesday the documents are “unequivocal.”
“We have admitted our role, and you cannot price fix alone.”
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Companies in this story: (TSX:L, TSX:WN, TSX:EMP.A, TSX:MRU, TSX:MFI)
Aleksandra Sagan, The Canadian Press