Empire Co. Ltd., Sobeys’ parent company, has submitted a proposal for an industry code to a government working group that is currently looking for ways to quell infighting in the grocery business. The pitch for more restraints on big grocers — coming from one of the biggest grocers, no less — is likely to have major impacts on how the vast majority of Canadians get their food.

“I don’t love more legislation, more regulation — I don’t,” Empire chief executive Michael Medline said in an interview. “I just don’t see any other way to improve relationships in this industry, all the way from farmers to customers.” Empire co-wrote the code of conduct with Food, Health and Consumer Products of Canada (FHCP) — an improbable alliance, considering FHCP has for years been the loudest and fiercest critic of how the big grocers treat their suppliers.

Food producers have been in open revolt against grocers since last year, when both Walmart Inc. and Loblaw Cos. Ltd. started charging suppliers extra fees to help cover the cost of e-commerce and infrastructure upgrades during the pandemic. So-called shelving fees and heavy fines for minor infractions such as short shipments have long been a point of contention for suppliers, who have little choice but to swallow the extra costs since they can’t risk being shut out by one of the few major grocery chains in a heavily consolidated market.

FHCP chief executive Michael Graydon last summer warned of growing frustration with supermarket chains “using the manufacturers as a bank,” and called for the government to step in and implement a code of conduct, similar to one used to rein in bully tactics in the United Kingdom’s grocery business. In his fight for a code of conduct, Graydon has found an ally in Medline, who shocked many in the industry by throwing his support behind suppliers in their push for regulation.

But now, Empire and FHCP are asking other major retailers to cooperate and provide feedback on their proposal to the government working group. Loblaw, Costco and Metro Inc. did not comment on March 25, although Metro has said it will wait to see what a code would look like before passing judgment. Walmart Canada said it supported “many of the principles” in the proposal, but disagreed that the sector needs regulation.

Small grocers, however, feel left out of the proposal, which only focuses on the major chains. The Canadian Federation of Independent Grocers (CFIG) had been working with FHCP to bring in industry regulation last year, but on March 25 said it was “disappointed” the proposal ignored independents. But Graydon at FHCP said focusing only on big grocers will end up solving problems for the independents, since bully tactics have historically left suppliers with less stock available for smaller stores, and less money to spend on promotions at those stores.

The draft code lays out rules of engagement on supply deals, which would be enforced through the creation of a new government watchdog. Empire and FHCP called for government to establish an adjudicator to issue “penalties, damages or costs” for non-compliance. Retailers would also be required to have their own internal compliance officers to field complaints from suppliers. 

Medline called the proposal a “Canadianized” version of the U.K. code, which was backed by legislation that forced grocers to abide by the rules. Christine Tacon, the U.K.’s former grocery watchdog who enforced the code until last year, helped Empire and FHCP with the proposal. Complaints about unilateral fee increases and penalties drastically declined following the U.K. code’s implementation. Tacon said retailers found the rules made their operations more efficient.

Tacon was one of dozens of experts and industry players interviewed by a Canadian cross-governmental working group on the grocery sector. Late in 2020, the federal, provincial and territorial ministers of agriculture tasked the working group with investigating fees in the grocery sector and coming up with recommendations in time for the ministers’ next meeting in July. The group decided the sector needed government intervention well before the surprise announcement from Empire and FHCP.

Quebec Agriculture Minister André Lamontagne, who co-chairs the working group said that, “It’s great what’s happening now. We have a whole sector that is ready to sit and see how it can become better, for the sake of its own health and for the sake of consumers in Canada,” he said. “I think it’s a very good thing.” Lamontagne said the draft code of conduct is “certainly aiming in a good direction,” but he added that it represented only one group’s perspective and encouraged other retailers to give feedback. The working group hasn’t yet decided that a code of conduct would be the best approach. “It’s a very active process,” he said.

Source: Globe and Mail
Source: Financial Post