Loblaw price-fixing offensive seen as winning strategy

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After Loblaw Cos. Ltd. struck a deal with the Competition Bureau to avoid criminal charges for its role in an alleged conspiracy to fix bread prices, the giant retailer faced another big task: stickhandling the public-relations fallout.

Loblaw could have opted to simply let the news play out and hope that its customers would remain loyal, despite the negative publicity. Instead, Canada's largest grocer went on the offensive by offering a $25 shopping voucher to customers and pointing at competitors in calling it an "industrywide price-fixing arrangement."

Some marketing and grocery experts say that Loblaw's strategy was textbook crisis management, leading with the bad news rather than being swept up by it, and offering a remedy.

"The initial advantage goes to Loblaw," said Michael Marinangeli, a grocery consultant and veteran of the industry.

"The competition can't react with a $25 gift card because they haven't admitted to any guilt. It's shocking how Loblaw blindsided their competitors."

Loblaw and its parent, George Weston Ltd., had confidentially admitted to the Competition Bureau in early 2015 that they had participated in a scheme to fix the prices of a variety of breads over 14 years.

In exchange for coming forward, Loblaw and bread maker Weston received immunity from criminal prosecution from the bureau. Loblaw launched its gift-card effort on its own, without the bureau requesting any such action, a bureau spokeswoman said.

Retail rivals Sobeys Inc., Metro Inc. and Giant Tiger, all targets of the inquiry, have strongly denied violating the Competition Act.

Walmart Canada Corp., the other retailer targeted, has declined to comment, and Canada Bread, the country's other major bread maker, said the allegations "do not reflect the Canada Bread we know."

They all say they are co-operating in the continuing investigation. Sobeys chief executive Michael Medline in December wrote a private letter to Loblaw and George Weston CEO Galen G. Weston, accusing him of taking "the opportunity to throw so many other retailers under the bus with you. … To state that there was an 'industrywide price-fixing arrangement' was unfair, unsubstantiated, and quite possibly defamatory."

Still, it's Loblaw that has shaped the message so far – rather than the bureau or its competitors – said Sylvain Charlebois, a food expert and dean of Dalhousie University's management faculty.|

"Sobeys and Metro have been reacting to what is happening," he said. Loblaw has kept in touch with Prof. Charlebois to communicate the company's position, he said.

David Silver, business ethics professor at the University of British Columbia's Sauder School of Business, said Loblaw appears to be trying to respond to the scandal by "doing the right thing."

On Dec. 19, when Loblaw and Weston issued their joint news release confessing to the crime and offering the free gift card to consumers, they also assured them that the culprits were no longer with the companies and that they had implemented tough internal compliance measures.

To "do the right thing," a company must "admit the facts, apologize, make amends, hold people accountable, seriously reflect on how it came to engage in the wrongdoing, and then make the necessary changes," Mr. Silver said.

But he said it's difficult to tell from the outside whether the changes Loblaw has implemented internally to respond to the crisis are sufficient. And it's tough to know whether it has "done the serious work to reflect on their own corporate culture, personnel, policies and incentive structures to see how they contributed to the scandal," he added.

Soon after Loblaw and George Weston released their statement on Dec. 19, they held an analyst conference call, estimating the gift cards would cost $75-million to $150-million.

"This conduct should never have happened," Mr. Weston said then. "And the gift card is a direct acknowledgment of that to our customers. We hope that they'll see it as a meaningful amount that demonstrates our commitment to keeping their trust and confidence."

The hundreds of pages of court documents that back up the bureau's successful bid to get search warrants to raid the offices of the seven targeted companies – plus those of B.C.-based Overwaitea Food Group – allege bread makers Weston Bakeries and Canada Bread acted in concert, along with the retailers, to artificially raise bread prices over 14-plus years by 10 cents 15 times since late 2001.

It remains to be seen if Loblaw's retail competitors will take further steps to respond to Loblaw's characterization of an industrywide scheme, or communicate with customers in connection with the price-fixing incidents. The evidence against retailers besides Loblaw is so far inconclusive, said Mr. Marinangeli, the grocery consultant.

Sobeys and Metro, the two key archrivals of Loblaw that have both vigorously denied contravening competition laws, are seeking disclosure of the identity of the Loblaw/Weston witnesses who provided information about their competitors.

Both retailers have invoked the Canadian Charter of Rights and Freedoms, suggesting their right to be protected against unreasonable search and seizure may have been violated by the search warrants the bureau obtained to raid the companies' offices. Another, unknown person will be in court in April arguing his or her name should remain blacked out in the documents.

Beyond those battles, at least 10 lawsuits seeking class-action status have been launched. One of them, last week, added Maple Leaf Foods Inc. to its list of corporate targets because it was the owner of Canada Bread until 2014, during the period when most of the alleged price-fixing activity occurred.

"This is a difficult matter," Mr. Weston told analysts in December, adding later: "Looking forward, we are confident that our businesses are being run with the highest integrity."