Shoppers enter a Loblaws grocery store in Toronto’s east end, May 1, 2024.Sammy Kogan/The Globe and Mail
After years of fractious negotiations over a grocery industry code of conduct, Loblaw Cos. Ltd. has dropped its earlier opposition and agreed to sign on to the new rules aimed at smoothing relations between retailers and their suppliers.
The support from Canada’s largest grocer removes a major barrier to the code’s implementation, but leaves another large retailer – Walmart Canada – still holding back on an agreement to sign on. In an interview on Thursday, Loblaw chief executive officer Per Bank said the self-regulatory scheme cannot move forward without cross-industry support.
“We are ready to sign, if all our competitors will sign as well,” Mr. Bank said.
What is the grocery code of conduct, and how could it impact food prices for Canadians?
Relations between grocers and their suppliers have been contentious for years. But calls for a code of conduct gained new momentum in 2020, after Loblaw and Walmart both announced increases in the fees they charge to manufacturers – a common practice among retailers that takes the form of deductions from their payments for product orders. Such fees can cover everything from in-store promotions and shelf placement, as well as fines for products damaged in transit, or deliveries that do not meet the quantities specified in an order.
Suppliers said at the time that the fee hikes were unfair, and underlined the need for ground rules for the industry. Provincial and territorial agriculture ministers also agreed to examine the issue.
Industry talks to develop the code have dragged on for roughly three years. In recent months, both Loblaw and Walmart had warned that the code as it was written could lead to higher prices for Canadians – a claim disputed by others in the industry, including Empire Co. Ltd. CEO Michael Medline.
Now, some of the wording of the code has been changed to clarify some areas of concern, according to Loblaw. For example, the retailer asked for stronger language to clarify that grocers have the right to reject supplier’s requests for cost increases – and that such a supplier could not take such a dispute before the code’s third-party adjudicator to try to force their hand.
“I think that’s unheard of, and having removed that, then our biggest concern is gone,” Mr. Bank said. “So we are happy that we can continue to negotiate and trade fairly with suppliers, as we have done for the past 100 years.”
Loblaw chairman Galen Weston raised a similar concern at a parliamentary committee meeting in December, citing the example of Australia, where a code of conduct exists. But other industry groups said at the time that the concern was not real, and Australian Food and Grocery Council deputy chief executive officer Samantha Blake wrote in an e-mail at the time that no third-party mechanism was involved in price increases.
None of the recent changes have fundamentally altered the code, said Michael Graydon, co-chair of the steering committee developing the code and CEO of Food and Consumer Products of Canada, which represents manufacturers. But some of the wording was clarified, he said.
“The key principles have not changed – transparency, fair dealing,” Mr. Graydon said. “There is less ability for misinterpretation. That’s really the exercise we went through.”
The code is still likely months away from going into effect, Mr. Graydon added. Before that can happen, an adjudicator to oversee disputes will have to be hired, industry players will require education on how to write supply agreements, and the committee must ensure support from other players such as Walmart and a majority of smaller independent suppliers and retailers.
In February, a House of Commons committee studying food prices sent a letter to the CEOs of Walmart and Loblaw, saying if they did not sign on to the voluntary code, the committee would recommend introducing legislation to enforce it. Mr. Bank said on Thursday that he believes there was no appetite in Ottawa or among the provinces to do so.
“That’s why they put pressure on us to resolve it on our own,” he said.
The code has been designed to set out parameters for things such as fair allocation of product supply to independent grocers as well as large players with more market power; a third-party adjudicator to mediate disputes between parties; and reliable order forecasting – which can be the basis of retailers’ fines, when orders don’t match up.
Other changes that Loblaw asked for included stronger wording about how the dispute resolution mechanism will work, which products and suppliers it applies to, and how future changes to the code will be decided.
Mr. Bank said on Thursday that co-operation across the grocery sector is necessary for the code to work.
“It needs to be a level playing field. So we need all the big players to be in on this one. And why wouldn’t they, because it’s a fair code,” he said. “I’m sure they will immediately join after they hear that we have joined.”
Walmart is considering the latest changes to the code, spokesperson Sarah Kennedy wrote in a statement on Thursday.
“We have just received the latest draft of the revised grocery code of conduct, which was not previously shared with us,” she wrote. “We will review it and determine next steps. As we’ve said all along, we continue to be focused on our customers’ best interests.”
Mr. Bank acknowledged that Loblaw has faced criticism for being “the odd one out” in not signing the code earlier. And it is not the only criticism the grocer is dealing with: Some consumers angry at the higher price of groceries recently launched a boycott against Loblaw-owned stores.
“We will continue to focus to give customers and Canadians what they want. And I feel it with them, it is tough with inflation,” Mr. Bank said. “But it’s gone now. Our internal inflation is close to zero now. I think the worst is over.”
He pointed to the company’s recent first-quarter results, which included increases in sales and profits as traffic to Loblaw stores increased.
“What matters is our ability and willingness to continue to give our customers value. They should look for value shopping in our store portfolio. And that’s also what we are seeing,” Mr. Bank said. “... We’ve never gained as much market share.”