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In December, Loblaws confessed to running a price-fixing scheme on bread with supplier Weston Bakeries, a sister company.
As of Jan. 8, anyone can go online and register for a $25 gift card, to be redeemed at any Loblaw Companies Ltd.-owned stores.
While some are saying that gift cards are a good start, others say the amount is not nearly enough to properly compensate consumers for how much more they would have had to pay for bread.
To be clear, what was organized between Loblaws and Weston was never about simply raising retail price points. It was more about gaining greater control over its competitive environment. Loblaws and Weston were dominant enough to be able to influence market behaviour and took advantage of this. This is illegal.
If anything, Loblaws should be compensating its competitors, not Canadians.
Loblaws’ genius was to spin the story in a way that made Canadians feel they were the ones in control, based on their layperson’s understanding of how the industry operates. The intricacies of food distribution are foreign to many of us, which seems to have leveraged Loblaws’ strategy in the aftermath of its mea culpa in December.
Price fluctuations affect most sections of a grocery store on a daily basis. Prices rise and fall regularly, even for loss leaders – products sold at a loss to attract more customers. And bread, a quintessential staple, is a loss leader. In fact, many bread products are even cheaper than they were in 2013.
Claiming that $25 is not enough for Canadians who felt cheated is based on flawed perceptions, unsubstantiated math and fairy dust. Simply, there is little evidence that the price-fixing scheme actually affected Canadians financially.
Ever since Loblaws admitted to having broken the law, everyone is talking about the $25 gift certificate. For Loblaws and Weston, that’s a brilliant result.
Few people care how the law was broken. They’re focusing instead on the idea that consumers were simply extorted.
Loblaws has beautifully positioned the gift cards as a distraction, causing the public discourse to shift. Few are asking how a company the size of Loblaws would not have been aware of an illegal scheme it had harboured for 14 long years.
Loblaws’ claim in December that price fixing is an industry-wide problem remains unquestioned. Fascinatingly, it allowed them to partially shift the blame to other retailers.
Loblaws recognized and capitalized on the fact that consumers tend to have short memories, especially during the holidays. The $25 gift cards became the means of atonement for Loblaws’ wrongdoing. But it doesn’t address the deeper issues of how the company changed market conditions and abused its power over its competitors.
Everything else – the ongoing investigation, the accusations, the cartel – is now secondary. The talk is almost exclusively about how we can get our $25.
Few have taken the time to understand what actually happened, how other food products could be affected by such an approach, and how this might be prevented from happening again. But these remain critical questions.
The $25 gift certificates are largely irrelevant to the company, as they should be to consumers. But Canadians will apply in droves for their gift certificates and that will drive more business Loblaws’ way. Most will spend more than $25 once in the store.
Loblaws has cleverly fooled the media, consumers, investors – everyone. The company’s stock price is up since it released its gift certificates and it will be surprising if the company suffers financially from this.
It isn’t right that Canadian consumers’ trust in Loblaws can be bought for a miserable $25. It should take more than that.
But the company has masterfully capitalized on consumers’ inability to fully grasp the essence of oligopolistic powers within the food industry, even though it affects consumers every day.
The idea that $25 could change their lives – even momentarily – is much more within reach.
Sylvain Charlebois is Senior Fellow with the Atlantic Institute for Market Studies, dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University, and author of Food Safety, Risk Intelligence and Benchmarking, published by Wiley-Blackwell (2017).
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