Price fixing of bread alleged, watchdog seeks evidence
Grocers feeling ‘astronomical’ margin pressures as rivals heat market: analyst
TORONTO — Allegations of price fixing in the bread aisles of major grocers are “shocking” and “bizarre,” analysts said Wednesday as more companies came forward to reveal they are co-operating with an investigation by the country’s competition watchdog.
Grocer Sobey’s Inc. — parent company of Thrifty Foods — confirmed Wednesday that the watchdog was present at its offices in connection with search warrants regarding pricing related to commercial bread dating back to 2001.
“They arrived in our Stellarton and Ontario offices [Tuesday],” said spokeswoman Jacquelin Corrado in an email. “We are co-operating to support the investigation and have advised employees internally of the process underway.”
The Competition Bureau said late Tuesday that the Ontario Superior Court in Ottawa granted search warrants “based on evidence that there are reasonable grounds to believe that certain individuals and companies have engaged in activities contrary to the Competition Act.”
Spokeswoman Marie-France Faucher said the bureau was conducting the searches and gathering evidence to determine the facts, but that there has been no conclusion of wrongdoing at this time and no charges have been laid.
Faucher added that she could not reveal more details, as the bureau is required to conduct investigations confidentially. The application and search warrants are also sealed.
Canada’s Competition Act prohibits agreements that “prevent or unduly lessen competition or to unreasonably enhance the price of a product.”
That could include agreements between competitors to fix prices, or to restrict production of a product by setting quotas or other means that would be considered cartel activities. Penalties for price fixing could include fines of up to $10 million, imprisonment to a maximum term of five years or both.
However, the bureau said price-fixing conspiracies are, by their nature, difficult to detect and prove.
“Suspicions and evidence of identical prices are not enough to prove a criminal offence,” the bureau says on its website.
The country’s other big grocers, Loblaw Companies Ltd. and Metro Inc. have said they are fully co-operating with the probe but would not comment on whether their offices were searched.
George Weston Ltd., which owns a controlling stake in Loblaw as well as the Weston Foods bakery, has said it is cooperating with investigators, as have Canada Bread Co. Ltd., which is owned by Mexican company Grupo Bimbo, and Walmart Canada.
Canada’s major retailers have measures in place to guard against price fixing, a practice that prevents or weakens competition through agreements to set prices at artificial levels, said retail analyst Bruce Winder. “It seems a little bizarre, because all the grocers and all the big companies have fairly strong policies, compliance programs and training for employees not to do this,” said Winder, co-founder and partner of Retail Advisors Network.
John Williams, a partner at retail consulting company J.C. Williams Group, called the probe “shocking” given that Canada’s major retailers are governed by very well-defined codes of ethics.
He also noted that the bread industry has been in “turmoil” as consumers look for healthier or artisan versions of the food staple, pushing producers to innovate with new varieties to stay competitive.
“It now has almost become a fashion item. Huge aisles of white bread are slowly shrinking,” Williams said.
Bread also remains a “highprofile item that grocery stores use to drive people in, much like milk,” said Winder.
Meanwhile, the sector has faced intensifying competition, with the entry of discount retailers such as Walmart into the grocery space and Amazon’s recent purchase of Whole Foods. “The margin pressure in groceries is astronomical. Competitors are looking for anything to try and get an edge,” Winder said.
The Competition Bureau has been cracking down on pricing practices in Canada in recent years. In February, the watchdog moved to sue Hudson’s Bay Co. over alleged deceptive pricing practices, an accusation the retailer denies.
The bureau also conducted an investigation into e-book pricing, and reached a deal in 2014 with four major e-book publishers that forced them to drop their practice of stopping retailers from offering discounts on the digital reading material.
TORONTO — Canada’s main stock index managed to eke out a record-high close on Wednesday after giving up moderate gains made earlier in the day.
The S&P/TSX composite index edged up 3.74 points to 16,029.33, with metals and energy stocks providing enough lift to keep the index out of the red. Earlier in the trading session, the commodity-heavy TSX set an intraday record high of 16,105.88.
In New York, markets were mixed following the Federal Reserve’s announcement that its key interest rate will remain unchanged in the low range of 1.0 per cent to 1.25 per cent. But it’s hinting that it’s preparing to resume raising rates as the economy shakes off the effects of recent hurricanes.
After giving up gains made earlier Wednesday, the Dow Jones industrial average advanced 57.77 points at 23,435.01 and the S&P 500 index added 4.10 points to 2,579.36. The Nasdaq composite index was down 11.14 points to 6,716.53.
“The dip we saw in the States at least was after the Fed meeting. It didn’t dip for long but I think that pulled Toronto and the markets down,” said Michael Currie, vicepresident of TD Wealth Private Investment Advice. “We always see some volatility following a Fed meeting even though this was a meeting where nothing really happened.”
Otherwise, Currie added, markets are generally still experiencing a long-term upward grind. “We’re still seeing new record highs on the major markets and nothing’s bucking that trend even with a bit of a slow one today,” he said.
With the U.S. central bank remaining confident that the strength of America’s job market and its overall economy will justify further gradual increases in interest rates, Curry said that will also have an effect on future rate hikes in Canada and the loonie. “From the Canadian perspective, especially with the loonie taking a dip as it has been, how much longer can they keep hiking rates in the States and not hike rates in Canada as well?” he said.
In currency markets, the Canadian dollar was trading at an average price of 77.61 cents US, up 0.05 of a U.S. cent.
On the corporate front, shares of Hudson’s Bay Co. were up $1.02, or 9.05 per cent, to $12.29 after the national retailer said it’s received an unsolicited offer from European retail competitor SIGNA Holding for its German department store chain Kaufhof and other real estate assets. HBC acquired Kaufhof in 2015 as part of a $3.2-billion deal that included Belgium retailer Galeria Inno.
In commodities news, the December crude contract was down eight cents to US$54.30 per barrel and the December natural gas contract was unchanged at US$2.89 per mmBTU. The December gold contract was up US$6.80 to US$1,277.30 an ounce and the December copper contract added four cents to US$3.14 a pound.
Tesla swings to $671M loss on Model 3 delays
DETROIT — Electric car maker Tesla Inc. swung to a $671 million loss in the third quarter as it struggled to ramp up production of its new Model 3 small car. The loss, of $3.70 per share, compared to a profit of 15 cents per share in the July-September period a year ago. That was far bigger decline than Wall Street had predicted. Analysts forecast a loss of $2.85 per share.
Sales of Tesla’s Model S sedan and Model X SUV rose 4.5 per cent to 25,915. But investors’ eyes were on the Model 3, the $35,000 US car that’s intended to move Tesla from a luxury niche automaker into the mainstream.