Canadian grocers address role in industry-wide bread price-fixing

Canadian grocery companies have taken action to address the issue, including enhancing competition compliance programs and ensuring employees responsible are no longer with the companies. Loblaw is also offering customers a $25 Loblaw Card, which can be used to purchase items sold in Loblaw grocery stores across Canada.

TORONTO -- George Weston Limited and Loblaw Companies Limited announced actions they have taken to address their role in an industry-wide price-fixing arrangement involving certain packaged bread products, and to ensure it never happens again.

Also read, Food Price Report expects Canadians to spend more on food in 2018.

As previously reported, the Competition Bureau has commenced an investigation into a price-fixing arrangement. The arrangement involved the coordination of retail and wholesale prices of certain packaged bread products over a period extending from late 2001 to March 2015. Under the arrangement, the participants regularly increased prices on a coordinated basis. The participants included Loblaw and the Weston Bakeries division of George Weston as well as other major grocery retailers and another bread wholesaler, some of which have acknowledged being searched by the Competition Bureau as part of its ongoing investigation.

The searches were conducted under court filings made by the Competition Bureau on a confidential basis. Although those filings remain sealed under a court order, they were made available earlier today to the Companies and other affected parties for review. Having reviewed the court filings and advised the Director of Public Prosecutions of Canada as required, the Companies are making further public disclosure at this time. As the court filings remain sealed, the Companies' disclosure at this time is limited to their knowledge of the Competition Bureau's investigation, in which they have been cooperating as an immunity applicant since March 2015.

"This sort of behaviour is wrong and has no place in our business or Canada's grocery industry," said Galen G. Weston, Chairman and Chief Executive Officer of both Companies. "This should never have happened."

In response, the Companies have taken four distinct courses of action.

First, upon discovering this anti-competitive behaviour in March 2015, the Companies immediately reported it to the Competition Bureau and they have been co-operating fully with the Competition Bureau. In doing so, the Boards of Directors of the Companies initiated a thorough investigation to get to the bottom of what happened, address it and report to the Competition Bureau. During the period in which the Companies were awaiting the Competition Bureau's determination as to whether it would proceed against other parties, they were required under competition legislation to keep their cooperation confidential.

Second, the employees responsible for Weston Bakeries' and Loblaw's role in this arrangement are no longer with the Companies.

Third, Loblaw is offering customers a $25 Loblaw Card, which can be used to purchase items sold in Loblaw grocery stores across Canada.

Fourth, the Companies have significantly enhanced their compliance programs with measures that are both industry-leading and go further than the Competition Bureau's own requirements. These measures include the following:

• Earlier this year, the Companies established a new independent compliance office, led by a Chief Compliance Officer, to oversee implementation of enterprise-wide policies required to ensure world-class competition law compliance. The Chief Compliance Officer reports directly to the Boards of Directors of the Companies.
• All sales and marketing personnel at Weston Bakeries, all merchants and store managers at Loblaw and senior leaders at each of George Weston, Weston Bakeries and Loblaw have undergone intensive compliance re-training and certification, with ongoing updates and monitoring.
• The Companies are the first in Canada to commit to, and begin implementation of, ISO 19600 for competition compliance program certification, which will provide independent, third-party validation against world-class standards.

Class action lawsuits have been commenced against the Companies as well as a number of major grocery retailers and another bread wholesaler on the basis of the searches initiated by the Competition Bureau. Those lawsuits and others are expected to proceed on the basis of the detailed information in the court filings. It is too early to predict the outcome of such legal proceedings. Neither of the Companies believes that the ultimate resolution of such legal proceedings will have a material adverse impact on its financial condition or prospects. Based on their current understanding of the facts, the Companies also expect that Loblaw's exposure will be somewhat larger than George Weston's because the majority of the overcharge accrued to retailers.

Loblaw will take a provision this quarter in relation to the card program, which is expected to cost between $75 and $150 million depending on customer take-up and to be an offset against civil liability Loblaw may face in this matter. In addition to the card program, each of the Companies may take a charge in the period in which they can reliably estimate damages or the matter is ultimately resolved. The card program cost should not be viewed as an estimate of damages.

The Companies' cash balances far exceed any realistic damages scenario. George Weston anticipates no impact on its dividend or dividend policy. Loblaw anticipates no impact on its dividend, dividend policy or share buyback plan.

As a result of their admission that they participated in the arrangement and their cooperation with the Competition Bureau's investigation, the Companies will not face criminal charges or penalties.

SOURCE Loblaw Companies Limited