Pedestrians walk past a Loblaws location in downtown Toronto on July 25.Sammy Kogan/The Globe and Mail
After his corporate empire agreed to a landmark $500-million settlement this week in lawsuits over a bread price-fixing scheme, Galen Weston apologized to Canadians, and acknowledged that Loblaw Cos. Ltd.’s L-T business relies on the trust of its customers.
“We have the privilege of serving Canadians from coast to coast. That privilege needs to be earned each and every day,” Mr. Weston, who is chairman of Loblaw and chairman and chief executive officer of parent company George Weston Ltd. WN-T, wrote in a statement on Thursday.
Executives are hoping that the settlements will allow the companies to put the scandal in the rear-view mirror. “It’s over,” Richard Dufresne, chief financial officer of both companies and president at George Weston, said on Loblaw’s second-quarter earnings call on Thursday.
But it is unlikely to be that simple. With grocers – and especially Canada’s largest, Loblaw – facing intense scrutiny over skyrocketing food inflation in recent years, consumers’ trust has already been shaken.
“It couldn’t happen at a worse time, really, because grocers have been in the spotlight so much,” said food market analyst Kevin Grier.
Loblaw and Weston first alerted the federal Competition Bureau to their role in an “industrywide” scheme to fix prices – in exchange for immunity from prosecution – back in 2015. That led to a criminal investigation that is still continuing.
The companies revealed their participation in the scheme to the public in 2017. Last year, Canada Bread, one of the country’s largest bread manufacturers, also pleaded guilty and agreed to pay a $50-million fine to settle its part of that investigation.
Parallel class-action lawsuits have also been in progress in Ontario and Quebec, which led to this week’s settlement. The slow drip-drip of news about the investigation has kept the story of price manipulation in Canadians’ minds, Mr. Grier said.
In 2018, Mr. Grier wrote a report analyzing Statistics Canada data. During the period that Loblaw and George Weston said the scheme was in place, from 2001 to 2015, he found that bread-price increases exceeded the overall food inflation rate in Canada, and also exceeded the increases in commodity prices such as flour and wheat. He also said that bread prices in Canada rose more than they did in the United States during that period.
The Ontario lawsuit has estimated that Canadians were overcharged as much as $5-billion as a result of the alleged scheme.
Mr. Grier believes that – with this scheme as a shocking exception – Canada’s grocery industry is very competitive. But the price-fixing news creates an image problem for the sector.
“I don’t believe they are doing well because of price gouging and because of lack of competition,” he said. “ … This is a horrible thing and a black eye to the industry.”
In fact, some of Loblaw’s competitors have accused the company, essentially, of trying to spread the public-image crisis around. Other retailers that are part of the Competition Bureau investigation and are named in the lawsuits – Metro Inc. MRU-T, Sobeys Inc. EMP-A-T, Walmart Canada WMT-N and Giant Tiger Stores Ltd. – have denied participating in the alleged scheme.
Both Metro and Sobeys have argued, in court documents related to the class action, that Loblaw has “falsely implicated” its competitors in a scheme they had nothing to do with.
“These false implications by Weston and Loblaw appear to be an effort to avoid the public perception that Loblaw was the sole retailer involved in a price-fixing conspiracy and to burden other retailers with a share of the potential class action liability arising from the admitted conspiracy,” Sobeys wrote in a statement of defence and crossclaim filed in Ontario Superior Court last October.
Loblaw denies those allegations.
“We’ve been clear that it was an industrywide arrangement,” Loblaw spokesperson Scott Bonikowsky said in an interview this week.
The $500-million sum is among the largest-class action settlements in Canadian history. Loblaw has already paid out $96-million in gift cards to its own stores, which it distributed to consumers shortly after revealing the scheme. In addition, Loblaw will pay $156.5-million in cash in the settlement, and George Weston will pay $247.5-million in cash.
The company still has work to do to rebuild trust with consumers, said Yanina Chevtchouk, an assistant professor of marketing at Trent University.
After $500-million Loblaw price-fixing settlement, lawyers set sights on other industry players
“Regaining trust is a process that starts with explaining to consumers how you got here in the first place. Because this didn’t just happen, decisions were made,” Prof. Chevtchouk said.
Loblaw has said the people responsible for the scheme are no longer with the company. The retailer has also created an office that reports to its board of directors, overseeing compliance with laws and policies, including pricing practices. The challenge is to communicate those changes to the public.
“I don’t think those are steps that consumers would notice because it’s not happening in front of them. It’s very much behind the scenes,” Prof. Chevtchouk said. “ … They also need to consider how the consumer is going to experience these changes and what they’re actually going to see change in their daily, weekly, monthly interactions with Loblaws.”
Asked whether the company could face further backlash, as a result of the settlement reminding consumers of the scandal, Mr. Bonikowsky said that Loblaw and Weston decided to settle “because we think it’s the right thing to do.”
“We’re pleased to get it behind us. We think it does benefit Canadians,” he said.