Is a grocery code of practice a good idea?
That’s the question being discussed at the moment across Canada.
Canada’s second-largest grocery retailer, Empire, and an industry group representing food manufacturers recently agreed to a draft grocery code of practice that they say takes aim at unfairness in the market.
Food, Health & Consumer Products of Canada (FHCP) and Empire said the proposed code addresses long-standing issues like arbitrary fees, cost increases imposed without notice, and late payments.
Empire already owns Sobeys, Foodland, FreshCo, and other brands, and recently agreed a deal to take over Ontario grocers Longo’s. It and FHCP are encouraging other grocers, suppliers, and industry stakeholders to support the proposed grocery code of practice.
They argue that poor retailer-supplier relations create negative repercussions in the market that affects consumers through pricing, product choices, and jobs, and that the code would establish a framework of good-faith industry business principles, such as requiring written agreements between large retailers and suppliers and ensuring changes to business terms are not imposed arbitrarily.
Empire CEO Michael Medline said retailers and suppliers made “unprecedented strides” collaborating during the pandemic to protect the food supply chain.
“Let’s not go back to the old way of doing things,” he said in a statement, per Global. “We hope our principled proposal will be a springboard to move our industry forward.”
“Retailers and suppliers are tough and savvy and our businesses do not always see eye to eye,” added Michael Graydon, president and CEO of FHCP. “However, we believe we can build a supply chain on mutual trust, one that treats businesses of all sizes fairly and delivers for all Canadians who count on us every day.”
The proposed grocery code of practice is being touted after Loblaw Companies Ltd., Walmart Canada, and United Grocers Inc., a national buying group representing Metro Inc., imposed higher fees on suppliers in recent months, a moe which raised the cost of getting goods on store shelves for food manufacturers.
The code would be a first of its kind in Canada but pulls lessons from similar documents, most notably the U.K. Groceries Supply Code of Practice.
The code was formally submitted on March 25 to a working group that was formed last November by the federal, provincial, and territorial (FPT) Ministers of Agriculture and Agri-Food to address issues in the grocery industry.
Walmart Canada spokesman Adam Grachnik said the retailer supports many of the principles outlined in the proposed grocery code of practice but disagrees that a “complex, legislated, bureaucratic code is necessary.”
“Walmart Canada has a great working relationship with our suppliers and we continue working with them to help nurture and support their businesses,” said Grachnik in an email to Canadian Grocer. “We already work collaboratively and transparently with all suppliers – big and small, domestic and international. That’s why we disagree that a complex, legislated, bureaucratic Code is necessary.”
“These are routine confidential business discussions and negotiations between retailers and suppliers,” he continued. “These discussions and negotiations happen every day and they reflect the dynamic competitiveness of the market.”
The code was also criticized by the Canadian Federation of Independent Grocers (CFIG) for its failure to mention small, independent grocers.
“We’re disappointed to see the association representing the big suppliers get together with a big retail chain to develop a code,” said Gary Sands, senior vice-president of public policy for the independent grocers advocacy group. “It’s sort of a reflection of what we see in the industry. There’s no reference to independents.”
He added that governments must give equal weight to all submissions it receives on the issue, and that ignoring independent grocery retailers could put the country’s food security at risk.
“That’s a big omission in our view, especially because a lot of the practices that go on in the industry disproportionately put the independent grocer at a competitive disadvantage and it was written through the lens of a big player,” Sands said. “There’s not an independent grocer in Canada that can negotiate any supply agreement on the same level as what the Loblaws and Walmarts of the world can get. It’s not even close.”
“Independents are in a lot of rural and remote communities in this country where there’s no chain, and there never will be a chain,” he added. “If we don’t start dealing with the issue of fair supply and fair pricing for those stores, they’re going to go under.”
Sylvain Charlebois, a Canadian researcher and a professor in food distribution and food policy at Dalhousie University in Halifax, Nova Scotia, wrote in the Financial Post that the push for a grocery code of practice comes as current market conditions have been making it more challenging for food processors in Canada.
“While food prices continue to climb in Canada, grocers’ fees, in addition to low margins, have meant manufacturers have not benefited from these rising prices,” Charlebois notes. “In most cases, farmers did not benefit from recent food price hikes. Some may speculate that food prices may rise due to a code, forcing grocers to charge more to protect margins.”
He adds that strong supply chain collaboration could lead to more innovation and growth, and that independent grocers would likely get some welcome help with the code.