One of Canada’s largest bread producers has pleaded guilty to a criminal scheme to fix bread prices and will pay a $50-million fine – the largest price-fixing fine ever handed down by a Canadian court and a major development in the federal Competition Bureau’s years-long investigation into the alleged conspiracy.
The parent company of Canada Bread, Mexico-based Grupo Bimbo GRBMF, announced on Wednesday that it has resolved the investigation, acknowledging that Canada Bread made “arrangements” with one or more unnamed senior executives at competitor Weston Foods, which led to two wholesale price increases in 2007 and 2011. The wholesale price is the fee charged by manufacturers to retailers, who factor it into the price they charge shoppers in their stores.
At the time, Canada Bread was majority-owned by Mississauga-based Maple Leaf Foods Inc., which remains under investigation by the bureau. Other companies still under investigation include Metro Inc., Sobeys Inc., Walmart Canada Corp., and Giant Tiger Stores Ltd. Representatives for all those companies have denied any violation of competition law.
“Fixing the price of bread – a food staple of Canadian households – was a serious criminal offence,” Matthew Boswell, the federal Commissioner of Competition, wrote in a news release on Wednesday. “Our continuing investigation remains a top priority. We are doing everything in our power to pursue those who engage in price-fixing.”
Toronto-based Canada Bread, which owns Dempster’s and other brands, is a leading manufacturer of baked goods in Canada. The scheme affected the price of various bread products, including sandwich loaves, rolls and hot dog buns.
According to a statement of agreed facts filed in Superior Court in Toronto on Wednesday, Maple Leaf did not disclose the conduct to Grupo Bimbo before its $1.83-billion acquisition of Canada Bread in 2014, nor did the buyer discover any details about the arrangements until the investigation became public in 2017. “Grupo Bimbo is considering all legal options against those responsible for the conduct addressed in court today,” the company wrote in a press release on Wednesday.
This is the first time in more than seven years that a company named in the investigation has acknowledged playing a role in the alleged conspiracy to inflate bread prices in Canada.
Maple Leaf Foods pushed back against the statement of agreed facts on Wednesday. “Maple Leaf Foods has just learned of the fine levied against Canada Bread. It is completely unknown to us why Canada Bread or its owner would have entered into this plea agreement,” the company statement said. “We are not aware of any wrongdoing by Canada Bread or its senior leadership during the time that we were a shareholder.
“Acting with integrity, honesty and transparency is integral to how we operate,” the statement provided by Maple Leaf Foods said. “We have acted ethically and lawfully at all times. We are not aware of and have never engaged in inappropriate or anticompetitive activity, and we will defend ourselves vigorously against any allegation to the contrary.”
The Competition Bureau’s investigation began after Loblaw Cos. Ltd. and its parent company George Weston Ltd. tipped off the federal watchdog, agreeing to co-operate in exchange for immunity from criminal charges. At the time, Loblaw offered $25 gift cards to customers as compensation.
Loblaw and Weston disclosed that the scheme to artificially raise the prices of bread products had continued for years, from 2001 to 2015, and included both its own stores and the Weston Foods manufacturing business, as well as other retailers and Canada Bread. (George Weston has since sold its Weston Foods bakery business.) The bureau’s investigation began in January of 2016.
In the document filed Wednesday, Canada Bread acknowledges that a “Former Senior Officer” at Maple Leaf, who was also CEO at Canada Bread, “initiated the contact” with Weston Foods to arrange bread price increases.
The court document describes an arrangement to increase wholesale prices in 2007, with Canada Bread announcing a 12- and 14-cent increase to private label and branded products, respectively, just two days before Weston Foods announced a 16-cent increase to some of its products. In 2011, after further arrangements between the two companies, Weston Foods announced an 8-per-cent hike to the wholesale price of “fresh commercial bread,” and Canada Bread hiked its price for the same product by 14 cents, though the document notes that the increase was not implemented on certain products.
The statement of agreed facts describes conversations between the “former senior officer” and one or more of Weston’s senior executives. The court document does not name the “Former Senior Officer.” Richard Lan was named CEO of Canada Bread in 2002, and also served as a chief operating officer at Maple Leaf Foods for many years during the alleged arrangements. He left Canada Bread shortly after Grupo Bimbo’s acquisition in 2014, and retired from Maple Leaf shortly after. Mr. Lan could not immediately be reached for comment on Wednesday.
Canada Bread’s annual sales for its fresh bakery products category – the majority of which comprises “fresh commercial bread” – rose from $945.9-million in 2007 to nearly $1.1-billion in 2011.
The court document states that Canada Bread has co-operated with the bureau during its investigation. “Under the ownership of Grupo Bimbo, Canada Bread presents a very low risk to re-offend,” the document says. The $50-million fine represents the maximum fine allowed under the Competition Act, according to the court filing, with a roughly 30 per cent “leniency reduction” related to the company’s co-operation in the case.
“Under new ownership, Canada Bread is committed to being a responsible partner to our valued customers and making bread an accessible and reliable food source for Canadians,” Canada Bread’s current vice-president, Alice Lee, wrote in a statement on Wednesday. “We are pleased to have resolved this matter, and we look forward to building upon our investments in Canada.”
The company declined to answer a question about whether Grupo Bimbo has taken any action to reverse or mitigate the wholesale price increases made as a result of the arrangements between Canada Bread and Weston Foods at the time.
In addition to the bureau’s continuing investigation, there are also unresolved civil matters related to the price-fixing scandal. Last year, an Ontario Superior Court judge certified a class-action lawsuit alleging the scheme led to shoppers being overcharged by an estimated $5-billion over 16 years – a longer period than Loblaw first disclosed, because the case alleges that inflated prices were not reduced and damages continued even after the conduct was made public. The Quebec Superior Court authorized another lawsuit over the alleged price fixing in 2019.
The Ontario suit named Loblaw; George Weston and former subsidiaries Weston Bakeries and Weston Foods; Metro Inc.; Walmart Canada; Giant Tiger Stores Ltd.; and Sobeys Inc. (The judge dismissed a motion to certify the action against Sobeys parent Empire Co. Ltd.; Walmart Canada parent Walmart Inc.; and Maple Leaf Foods Inc.). Both cases are continuing.
The bread scandal fundamentally shook Canadians’ trust in the grocery retail sector – a sentiment that has only curdled further over the past two years, as food prices have jumped by 18 per cent and have consistently outpaced the general rate of inflation. Grocers have repeated the message that food inflation is a complex issue, affected by multiple factors along the supply chain, and is not the retailers’ fault.
Separately from the bread case, the Competition Bureau also launched a study of Canada’s grocery sector last fall, with the aim of making recommendations to government on how to improve competition in the industry. The bureau said the study was not an investigation into any specific allegations of wrongdoing, and it has relied on companies to voluntarily provide information.