People line up at the cash registers at a Costco in Ottawa, amid growing concern about COVID-19, on March 13, 2020.Justin Tang/The Canadian Press
After years of contentious negotiations over a grocery industry code of conduct, all of Canada’s major grocers have now agreed to sign on to the new self-regulatory scheme for the first time.
This week, both Costco Canada COST-Q and Walmart Canada WMT-N agreed to participate in the new rules, which are designed to smooth relations between retailers and their suppliers. Their agreements follow Canada’s largest grocer, Loblaw Cos. Ltd. L-T, which also dropped its earlier opposition to the code in May.
This means that all of Canada’s largest grocers, as well as a number of regional and local independent retailers across the country, have now committed to participating, as have all “key suppliers, large and small,” that provide food to those stores’ shelves. That’s according to a report from the Office of the Grocery Sector Code of Conduct interim board of directors, which was provided to Canada’s federal, provincial and territorial agriculture ministers on Wednesday.
The code is unlikely to provide any relief to Canadians still reeling from significant increases in grocery prices. While the rate of food inflation has slowed in recent months, prices for many products are still much higher than they were just a couple of years ago. Other countries with grocery codes already in place, such as the United Kingdom, were not exempt from punishing price increases.
“That was never really the goal of the code,” said Michael Graydon, co-chair of the steering committee developing the code and chief executive officer of Food and Consumer Products of Canada, which represents manufacturers. What it does provide is more economic certainty for suppliers, he added, which will allow them to invest in product innovation, sustainability initiatives and improvements in packaging, among other things.
The new code is expected to be implemented by June of next year. Before that can happen, the board still needs to hire an adjudicator who would manage any disputes arising under the code, establish an office to oversee it and educate people across the industry about the code’s requirements.
Relations between grocers and their suppliers have been fractious for years. But in 2020, there were renewed calls for a code of conduct, after Loblaw and Walmart both announced increases in the fees they charge to suppliers. Such fees are common among all large retailers – taking the form of deductions from the payments that grocers make to suppliers for deliveries of goods – and cover a number of things including placement of products on shelves and contributions to in-store promotions. Grocers’ deductions can also include fines for products damaged in transit, or deliveries that do not meet the quantities specified in an order.
The fee increases in 2020, which helped to offset investments that both Loblaw and Walmart were making to improve stores and e-commerce operations, led to a backlash from suppliers who said the moves were proof of the need for better ground rules for the industry. Provincial and territorial agriculture ministers also began examining the issue.
The code is designed to set guardrails for issues such as the fair allocation of product supply to independent grocers, as they attempt to compete with large players who have more market power; and reliable order forecasting – a basis for some retailers’ fines, when orders do not match up. The code’s third-party adjudicator will mediate disputes between parties.
Industry discussions to establish the code have dragged on for roughly three years. In February, a House of Commons committee studying food prices sent a letter to the CEOs of Walmart and Loblaw, saying the committee would consider legislating the rules if the retailers did not sign on to the voluntary code.
“We all have been really really focused on trying to get a voluntary code, because we highly believe that industry should be running this and not government,” said Mr. Graydon.
In the spring, Loblaw asked for changes and clarifications to some of the wording in the code, including a specification that grocers are entitled to reject requests for cost increases from suppliers, without it leading to such a dispute going before the code’s third-party adjudicator in an attempt to force their hand.
Following those changes, Loblaw dropped its opposition to the code, but chief executive officer Per Bank stipulated the company was prepared to sign only if all of Loblaw’s competitors did the same. Walmart and Costco have agreed to support that updated version.
Still, even as Walmart signalled its support on Thursday, spokesperson Stephanie Fusco wrote in a statement that the company has “not seen the need for a code,” because it already has positive relationships with suppliers. “We still have some important discussions with the industry steering committee regarding governance and dispute resolution,” the statement said, but added that Walmart decided to support the code following “significant progress” to make it “fairer and more balanced.”
Costco Canada did not respond to a request for comment on Thursday.
The code would not prevent retailers from charging the kinds of fees that have caused conflicts with suppliers in the past, and which are ongoing. On July 3, Sobeys sent a letter to some of the suppliers who deliver products directly to its stores, announcing a 5-per-cent deduction that will apply to all their products starting on Sept. 2. The letter, obtained by The Globe and Mail, said the deduction would offset “billing and invoice management” expenses.
The change is ensuring consistent rates are charged to the subset of Sobeys’ suppliers who deliver direct to stores, Sobeys spokesperson Karen White-Boswell wrote in an e-mailed statement on Thursday. Ms. White-Boswell did not specify how many suppliers will be affected, but wrote that the notice “is absolutely aligned with Empire’s support for the Grocery Code of Conduct which speaks to fair, transparent, and timely communication between retailers and suppliers.”