Crisis Communication Case Study: Loblaws Canada Bread Price-Fixing Scandal

1 Crisis Communication Case Study: Loblaws Canada Bread Price-Fixing Scandal Crisis Communication Case Study: Loblaws Canada Bread Price-Fixing Scandal 1) Corporate Profile. a. Name of corporation: Loblaw Companies Limited b. Name of founder and year of incorporation: The company was founded in 1919 by Theodore Loblaw and John Milton Cork (Loblaw Companies Limited, n.d.). c. Name of current CEO: Galen G. Weston is the executive chairman and CEO of Loblaw Companies Ltd. d. Revenues for the last reported fiscal year. The 2020 revenue was $52.714 billion (Loblaw Companies Limited, 2020).

2) Summary of Crisis Situation Loblaw Companies Ltd. was involved in a bread price-fixing scandal for over 14 years, between late 2001 and March 2015 (Strauss, 2017). The company was involved in a scheme to increase the prices of packaged bread. Loblaw's parent company, George Weston Ltd., the owner of Weston Bakeries, also participated in price-fixing with other big grocery chains and bread producers (Strauss, 2017). The price-fixing scheme led to an increase in the price of bread by approximately $1.50. The companies believed to have participated in the scheme include two major bread suppliers and three retailers. The suppliers include Weston Bakeries and Canada Bread, while the retailers are Loblaw, Walmart, Sobeys, Giant Tiger, and Metro. The scheme involved an increase in the bread price by the suppliers by 7 cents, while the retailers hiked the price by 10 cents (Shaw, 2018).

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2 Between 2001 and 2015, these companies communicated with each other to increase the prices in tandem. The investigation into the price-fixing scandal started in March 2015 when whistleblowers from Weston Bakeries revealed their participation in the scheme to the federal department. Loblaw and George Weston admitted to their wrongdoing and agreed to cooperate with the Competition Bureau in exchange for immunity from penalties and criminal charges (Strauss,2017). Loblaw compensated its customers by giving them a $25 gift card. However, the competitors viewed it as a marketing tactic. Moreover, the consumers criticized Loblaw for violating their privacy by asking for their personal details to access the gift card. The company also faced multiple class-action lawsuits for its involvement in the price-fixing scheme.

The crisis was internal because Loblaw's problematic business practices caused it.

According to Cornelissen (2020), a crisis is an issue or event that needs immediate action from a company. A crisis can either be internal or external and intentional or unintentional. An internal crisis results from an action by the organization's members, while an external crisis is caused by a group or individual outside the firm (Cornelissen, 2020). In this case, Loblaw's price-fixing scheme was an internal crisis as it was done by the company's employees. Moreover, an intentional crisis is committed deliberately, while an unintentional one is not deliberate. Loblaw's crisis was intentional as the members of the organization committed it deliberately. The Loblaw crisis can also be categorized as a transgression as it was intentionally committed by the organization while knowing that it would have a negative impact on the public (Cornelissen, 2020).

3) Discussion of Issues There are pertinent political, social, and industrial issues surrounding Loblaw's pricefixing scheme. Political issues refer to factors such as government regulations affecting the industry in which the firm operates (Cornelissen, 2020). Under Canadian laws, involvement in price-fixing can lead to imprisonment for 14 years maximum and fines of approximately $24 million (Strauss, 2017). However, Loblaw did not face any of these penalties as it received immunity in exchange for admitting to the crime and cooperating with the Competition Bureau.

Social factors refer to changing societal attitudes to some industries and the growing demand for corporate citizenship (Cornelissen, 2020). Loblaw did not engage in corporate citizenship as it was involved in price-fixing, which adversely affected the customers and competitors.

Consumers reacted to its lack of corporate citizenship by losing trust in the organization and buying less from the company, leading to a 0.9% drop in total revenue in the fourth quarter (Zivitz, 2018). An industrial issue in the company's price-fixing scheme is that it disrupts the normal supply and demand laws and gives monopolies an advantage over the competition.

The crisis situation at Loblaw was a case of a latent issue that became active. Before whistleblowers reported the issue, it had been ongoing for 14 years without being discovered.

The company managed the issue by employing the bridging strategy that entails reactively trying to adapt organizational activities to ensure that they conform to the expectations of the public and other important stakeholders (Cornelissen, 2020). When the scheme was revealed, the company responded by admitting to its involvement and promised to take actions to prevent it from recurring.

4) Media Frames and Channels

3 The stakeholders who contributed to the crisis situation include the employees who participated in price-fixing, the company's whistleblowers, and the media. The press coverage of the situation enabled the public to learn about the company's price-fixing and react to it. The crisis situation happened over both traditional and social media channels. It was covered in Canadian television channels such as CBC News Network and BNN Bloomberg, and newspapers such as The Globe and Mail, Vancouver Sun, Montreal Gazette, Toronto Star, and National Post. People also discussed the scandal on social networking sites, including Twitter and Facebook. The company was criticized by the consumers, competitors, and the media for their involvement in price-fixing. The competitors also called out the company for using the $25 gift card as a marketing tactic (Strauss, 2018). The customers were also displeased with the manner in which the $25 gift voucher was issued. They were concerned about their privacy as they were required to provide their personal details by scanning their driver's license or utility bill to qualify for the gift card (Strauss, 2018).

News framing is the selective portrayal of events by the media to explain them to a broader audience in familiar terms. The journalists frame news depending on their personal or organization's ideology and political views (Cornelissen, 2020). The media used the responsibility and economic consequences frames when reporting the bread price-fixing scandal

by Loblaw. The responsibility frame is employed when an organization or individual is held responsible for causing an event, while the economic consequences frame highlights the financial impacts of the crisis (Nijkrake et al., 2015). The media emphasized that Loblaw was responsible for the price-fixing scheme and also focused on the financial consequences on the consumers and competitors.

5) Corporate Response The company used acceptance and accommodative crisis communication strategies.

Acceptance entails accepting culpability of responsibility for the crisis, while accommodative strategy involves promising to take steps to ensure that the crisis does not recur (Cornelissen, 2020). After whistleblowers revealed that Loblaw was involved in the bread price-fixing scandal, the company responded by admitting its involvement and promised to cooperate with the Competition Bureau in the investigation. Loblaw also revealed the involvement of other bread retailers and producers in the scheme. The company also gave $25 gift vouchers to its customers as reparation for its actions. Loblaw's goal was to be seen as a responsible company that owned up to its mistake. The company also outlined the steps it would take to prevent the recurrence of the crisis, including enhancing the competition compliance programs in the company (Loblaw Companies Limited, 2017).

Loblaw used an online newsroom to communicate to the stakeholders. An online newsroom refers to a dedicated section of an organization's website that includes standard reports, press releases, speeches, news feeds, videos, searchable archives of content, podcasts, and widgets (Cornelissen, 2020). The company communicated about the price-fixing scandal on a section of its website named "Releases and Statements" (Loblaw Companies Limited, 2017).

According to Nijkrake (2015), tone can be negative, positive, or neutral, and it influences the audience to think in a particular way about an issue. Loblaw used a positive tone to communicate to the stakeholders to influence them to think positively about its actions. The company admitted to its involvement in the scheme and condemned the behaviour as wrong. It then stated the actions it had taken to address the issue, including reporting the matter to the Competition

4 Bureau immediately after learning about it, letting go of the workers responsible for the scheme, offering a $25 gift card to the customers, and enhancing competition compliance programs (Loblaw Companies Limited, 2017).

6) Outcome Loblaw's price-fixing scandal had both immediate and long-term financial and reputational outcomes. Dalhousie conducted a study in November 2017, a month before the company admitted that it was involved in the price-fixing scheme, and March 2018, to find out if the consumer trust in food retailers had declined (Strauss, 2018). The study revealed that after the crisis, Loblaw's reputation declined by 10 percent (CBC News, 2018). Loblaw's total revenue in the fourth quarter also dropped by 0.9% to $11.03 billion (Zivitz, 2018). However, its adjusted quarterly profit increased by 12.2% to $441 million or $1.13 per share. The company also suffered financial loss because of the $25 gift cards it offered to the customers as compensation for the price-fixing. Loblaw estimated that the voucher program would cost it approximately $107million (Zivitz, 2018). The company also expected to suffer financial losses from paying damages resulting from class-action lawsuits. Several class-action suits were filed against the company, including a $1 billion lawsuit by Derek Nepinak against all the companies mentioned in the scheme, a $1 billion lawsuit by an anti-poverty activist, and another by Merchant Law Group LLP (Malone, 2018).

Although an online survey conducted in February 2018 revealed that most customers positively received Loblaw's strategy of giving $25 gift cards to consumers, the company had not restored its reputation yet as many consumers had not forgotten about the scheme. According to the survey, 61% of the respondents were pleased with Loblaw's gift card. However, the survey also revealed that only 17.2% still loved the company, while 41.2% were disappointed at Loblaw for its involvement in price-fixing, 9.4% were angry, and 3.6% had a strong hatred for the organization (Strauss, 2018). Although it took a while for the company to restore its reputation, I believe that it recovered from the crisis because its revenue has been growing from 2018 to 2020.

In 2018, 2019, and 2020, the revenue was $46.693 billion, $48.037 billion, and $53.714 billion, respectively (Loblaw Companies Limited, 2020).

5 References CBC News. (2018, March 20). Loblaws losing consumer trust after bread price fixing story, Dalhousie study finds. https://www.cbc.ca/news/business/grocery-bread-price-fixinggrocery-trust-dalhousie-1.4584400 Cornelissen, J. (2020). Corporate communication: A guide to theory & practice (6th ed.). Sage.

Loblaw Companies Limited. (2017, December 19). George Weston and Loblaw take action to address industry-wide anti-competitive activity. https://www.loblaw.ca/en/georgeweston-and-loblaw-take-action-to-address-industry-wide-anti-competitive-activity Loblaw Companies Limited. (2020). 2020 annual report. https://www.loblaw.ca/en/investorsreports Loblaw Companies Limited. (n.d.). Canada's food and pharmacy leader. https://www.loblaw.ca/en/who-we-are Malone, K. (2018, January 3). Former Manitoba grand chief files $1B class-action suit over bread price-fixing. CBC News. https://www.cbc.ca/news/canada/manitoba/derek-nepinakclass-action-lawsuit-bread-price-fixing-1.4471660 Nijkrake, J., Gosselt, J. F., & Gutteling, J. M. (2015). Competing frames and tone in corporate communication versus media coverage during a crisis. Public Relations Review, 41(1), 80-88.

Shaw, H. (2018, February 1). 'Why the hell are they at$1.88?': Inside the damning allegations of Canada's bread price fixing scandal. Financial Post. https://financialpost.com/news/retail-marketing/why-the-hell-are-they-at-1-88-inside-thedamning-allegations-of-collusion-between-grocers-producers-to-fix-bread-prices Strauss, M. (2017, December 19). Loblaw admits to bread price-fixing scheme spanning more than 14 years. The Globe and Mail. https://www.theglobeandmail.com/report-onbusiness/loblaw-parent-company-alerted-competition-watchdog-to-bread-price-fixing/ article37387816/ Strauss, M. (2018, March 20). Consumer trust in grocers tumbles after bread-price-fixing scheme: study. The Globe and Mail. https://www.theglobeandmail.com/report-onbusiness/consumer-trust-in-grocers-tumbles-after-bread-price-fixing-scheme-study/ article38308074/ Zivitz, N. (2018, February 22). Loblaw books $107-million charge on bread scandal, warns of 'exceptional headwinds.' BNN Bloomberg. https://www.bnnbloomberg.ca/loblaw-fourthquarter-profit-falls-on-charges-1.1007325