According to recent news reports, well known chocolate companies including Hershey, Nestle, Mars and Cadbury Schweppes are facing investigation in Canada sparked by suspicions that they and others have teamed up in a price-fixing scheme in the multbillion dollar Canadian business of chocolate and confectionary products.


The Competition Bureau served warrants on bar-makers this week requiring them to turn over reams of documents on their pricing arrangements.

The Confectionary Manufacturers Association of Canada, reports that Canadians buy about $2.3 billion work of chocolate and candy products a year. There are allegations that chocolate bars are singularly priced at retail without distinction between brands. That could be the simple result of pressure from the market to be price competitive or it could be the result of the buying power exercised by national retailers and national distributors.

All four companies have said they are cooperating with investigators. Coincidently, on Wednesday, Hershey stock rose $1.11 a share or 2.8% to $40.21 on the New York Stock Exchange, its biggest increase in weeks. Cadbury gained 2.8 percent on the London Exchange and Nestle advanced 1.1 percent in Zurich.

Hershey, the Pennsylvania-based confectioner makes Skor and Hershey chocolate bars as well as its Canadian boxed chocolate brand, Pot of Gold which used to be made in Halifax but is now manufactured in Mexico.

Cadbury, the world’s biggest confectionary company, sells branded chocolate bar such as Dairy Milk and Fruit & Nut in Canada. Nestle, the world’s largest food maker, based in Vevey, Switzerland, manufactures Turtles, KitKat and Coffee Crisp chocolate bars. Everyone knows Mars Bar. They also make Snickers and Skittles. By the way, none of the price-fixing allegations have been proven.

When price-fixing investigations are conducted, the assumption is that companies under scrutiny have market power and/or the ability to control prices, so it’s generally the major players in an industry that would be under review.

It’s noteworthy that Ganong, Canada’s largest independent producer of chocolate and confectionary products is not included in the probe.

Price fixing is an agreement between business competitors to sell the same product or service at the same price. In general, it is an agreement intended to push the price of a product as high as possible, leading to increased profits for the sellers. Price-fixing can also involve an agreement to peg, discount or stabilize prices. In Canada, price-fixing is illegal but often hard to prove. The principle characteristic of price-fixing is any agreement on price, whether expressed or implied.

What’s most interesting to me is that the chocolate probe appears to focus exclusively on the manufacturers of chocolate products. In Canada, pricing of most chocolate related products is controlled, not by manufacturers but by major national and international retailers like Wal-Mart, Costco, Sears, Loblaws, Sobeys, Shoppers Drug and others.

The selling power of big store retailers is so great in Canada that they dictate price and control the distribution channels that manufacturers require to sell their products. Manufacturers pay fees to these retailers just to have their products listed. When manufacturers, particularly smaller domestic manufacturers insist on price increases for their products, they are often de-listed by national retailers.

Chocolate bars and bagged candy are sold in convenience stores; most of them are part of a regional or national chain like Needs, Seven Eleven or convenience store attachments to a gasoline retailer. Here again, manufacturers pay fees and control shelf space but they do not control retail prices and generally they don’t control their sell-in prices to the retailers.

During the last fifteen or twenty years, the Canadian retail landscape has been transformed by the growth and clustering of big box retailers into a range of ‘power retail’ developments. This has brought new players into Canada, like Wal-Mart, Home Depot and Costco. The big U.S. box stores and their centrally located buying power dominate all aspects of the retail offer in this country including: product distribution, promotion and price. They are followed in this practice by Canadian retailers like Sobeys and Loblaws (Atlantic Superstores and Save Easy).

The Canadian market is one-tenth the size of the U.S. market which presents scale issues for manufacturers in Canada when competing with prices from U.S. manufacturers, even with a strong Canadian dollar.

The cost of doing business in this country is higher, given our higher labour costs, transportation/logistic costs and various labeling requirements (nutritional, bilingual, metric, etc.). Production costs in the confectionery business are sensitive to even small increases in world sugar, cocoa and nut prices. The prices of these globally traded commodities are often volatile. When prices increase significantly, processors have no easy way of passing them along to consumers while retaining market-share.

Canadian firms that export products are less competitive when world commodity prices rise. They are less competitive when the value of Canada’s dollar rises. The market advantage that Canadian confectionery manufacturers used to enjoy, by virtue of a low dollar is gone.

The rise in value of the Canadian dollar has caused some retailers in Canada to demand that the federal government do something to alleviate the problem of cross-border shopping. The Retail Council of Canada represents 40,000 retail outlets in the country. They want Finance Minister Jim Flaherty to put pressure on manufacturers to lower their prices in Canada.

Ironically, the recommendation by the Retail Council has come just as the price-fixing allegations against chocolate and candy manufacturers have surfaced. It may be coincidence but probably not. The companies under investigation import much if not all of their products to Canada and enjoy the benefits of a higher value Canadian dollar.


If the big four, multi-national producers of chocolate products in Canada are proven to be price-fixers, I will be more than a little surprised. It’s our national retailers who set prices.


Our domestic manufacturers are caught in the middle.


W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com