A conspiracy that drove up the price of ice

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A few years ago, Peggy Perry found herself scratching her head over the cost of ice.

Her store, Calgary-based Willow Park Wines & Spirits, sells bagged ice along with a wide variety of alcoholic beverages. When she sat down to do the math, buying the ice seemed unreasonably expensive.

Ms. Perry, Willow Park's vice-president for marketing and purchasing, figured there was "something fishy going on."

And she realized "if we made our own ice we'd make a small fortune."

Ms. Perry was right. For $5,000, Willow Park bought an ice machine. It paid it off in months. The store now sells ice at $2 a bag - less than the Calgary going rate of $2.50 - but still manages to turn an 80-per-cent profit. It is likely the store's highest-margin product, she said.

In a country where ice comes both free and unwanted for months of the year, frozen water isn't something people spend much time thinking about. And the price of ice, often an impulse buy on a warm summer day, doesn't get much attention, either.

"They call ice the forgotten food," said Glenn Davies, one of the partners in Victoria-based Vancouver Island Ice Depot Ltd. "Nobody cares how much they pay."

But over the past few years, those forgotten prices have suddenly gained prominence in the U.S., where a major investigation has led to several conspiracy admissions from two of the continent's three dominant packaged-ice vendors, including the U.S. subsidiary of the Winnipeg-based Arctic Glacier Income Fund . Last week, the U.S. subsidiary - Arctic Glacier International Inc. - agreed to plead guilty to conspiracy charges and a $9-million (U.S.) fine.

Arctic Glacier International admitted it had engaged in a cartel-like "market allocation" scheme, essentially carving up the market with competitors to keep prices high, in Detroit and southeastern Michigan.

In separate charges, three executives of Arctic Glacier International - Frank Larson, its former senior vice-president of operations, and Keith Corbin and Gary Cooley, both former vice-presidents of sales and marketing - pleaded guilty to participating in the conspiracy, and promised their co-operation with investigators.

More than two-thirds of the $900-million in packaged ice sales in the U.S. come from three companies: Arctic Glacier's U.S. business, Dallas-headquartered Reddy Ice Holdings Inc. and Cincinnati-based Home City Ice Co. Home City Ice pleaded guilty to similar charges last year. The Federal Bureau of Investigation has also searched Reddy Ice offices.

A Competition Bureau spokesman declined to comment on the company. No Canadian antitrust allegations have been announced.

But the company has clashed with rivals here. In Alberta, a small ice maker successfully sued Arctic Glacier's Canadian business for anti-competitive practices, including offering a bribe to a customer. An Alberta judge found that Arctic Glacier resorted to "outrageous conduct" to maintain its market dominance.

In 2007, Polar Ice Express Inc., a small Edmonton-based ice-maker, was awarded $50,000 in damages, plus nearly $100,000 in legal costs, after convincing the court that an Arctic Glacier employee offered a $10,000 bribe to a customer in the cement industry. The bribe was offered - but not accepted - in exchange for an exclusive contract that would have shut out Polar Ice.

The judgment, which was upheld on appeal, also shed light on the pricing power Arctic Glacier had. Before Polar Ice showed up, Arctic Glacier charged the cement company $4.65 for a 12-kilogram bag of ice, plus shipping.

That price stuck Polar Ice owner Jerry Antoniuk as too high. "I couldn't charge that," he said. His price: $3.25, shipping included.

Arctic Glacier's senior executives and board chairman did not respond to interview requests. In a statement released last week, the company said it has boosted an internal compliance system and pledged to co-operate with the ongoing U.S. Department of Justice investigation. Arctic Glacier said it was "unaware of such practices following our acquisition of several companies in Michigan and our entry into that market in 2005."

Arctic Glacier's unit price reached nearly $15 in late 2007, before tumbling when allegations against the company surfaced in 2008, and units fell below $1.

The U.S. investigation was triggered not by prices, but by a man who calls himself a whistleblower. Martin McNulty was vice-president of sales for Party Time Ice, a Michigan company that Arctic Glacier acquired in 2004, in what was then its biggest acquisition in a continent-wide buying spree. From 1996 on, Arctic Glacier bought 77 companies worth nearly $500-million.

Mr. McNulty lasted little more than a month with Arctic Glacier's U.S. unit, after refusing to participate in the market-splitting scheme and working with the U.S. Justice Department to record incriminating conversations, his lawyer says. Arctic Glacier's anticompetitive moves extended into other parts of North America, said Daniel Low, the lawyer representing Mr. McNulty.

In a court filing, Arctic Glacier repeatedly "denies as untrue" Mr. McNulty's allegations.

But Andrew Morganti, a Michigan-based lawyer who is advising a Canadian class-action suit against Arctic Glacier and competitors, said "if you look at the geographic markets that these companies handle, it's quite compelling. It looks like a puzzle piece," where businesses would stick to their respective areas. Mr. Morganti has calculated that between 2001 and 2007, wholesale prices of ice in Michigan increased from about 55 to 90 cents a bag, a 64-per-cent rise.

In Ontario, Mac's Convenience Stores Inc., which buys from Arctic Glacier, saw prices for a 2.7-kilogram bag rise by 21.6 per cent between 2002 and 2008; prices for four-kilogram bags jumped 37 per cent. Prices for soft drinks, which have a similar cost structure to ice, rose by a smaller amount, said Kim Trowbridge, vice-president for the central and western divisions at the company, the biggest convenience store chain owner in Canada.

Packaged ice "is a sleeper category that would not be noticed if people were playing games with it," he said.