The chief executive officer of Sobeys parent company Empire Co. Ltd. is supporting a code of conduct for the grocery industry in Canada, calling recent moves by competitors to raise fees for suppliers “repugnant” and “terrible” for consumers.
Empire is the first among the major grocers to side with suppliers and smaller retailers who have recently renewed calls for regulation of the industry, as grocery giants Walmart Canada and Loblaw Companies Ltd. advised suppliers that fees to carry their products would be going up.
“This is the worst relationship I’ve seen in my couple of decades in retail,” Empire CEO Michael Medline said in an online discussion hosted by the Empire Club of Canada on Wednesday. “… I don’t think it’s healthy. Some of the practices … are for me, hard to believe and repugnant actually. And taken to the extreme, some of these behaviours are just plain bad for Canada.”
Mr. Medline said that Empire’s grocery chains – which include Sobeys, Safeway, FreshCo and others – will not follow suit in raising fees. And he added that a code of conduct similar to the one introduced in Britain should be considered.
The latest dispute between retailers and suppliers began in the summer, when Walmart Canada announced fee increases beginning in September. Retailers typically charge fees to vendors for shelf placement and in-store promotions, by reducing what they pay to those suppliers for their products. Tensions have flared more than once in the industry over the years, as those agreements have changed.
After Walmart’s notices to suppliers went out, United Grocers Inc. – which represents 6,500 food retailers, including Metro Inc., Alimentation Couche-Tard Inc., Dollarama Inc. and others – told suppliers its members would expect the same terms as competitors get. And last week Loblaw also told suppliers it would be raising their fees, starting in January.
Empire has also renegotiated its supplier fees in recent years, particularly after Mr. Medline joined the company, when he said the chains were being “gored” by some suppliers because they were not negotiating on a harmonized, national basis. But he said Wednesday that the company will not raise fees again now.
“We won’t follow suit,” Mr. Medline said. “We negotiate, and communicate and discuss things with our supplier partners. … We will take care of ourselves and we’ll take care of our shareholders, but we’ll do it in the right way.”
The battle between retailers and suppliers is creating an inflationary environment when it comes to grocery prices, said Michael Graydon, CEO of industry group Food, Health & Consumer Products of Canada, who welcomed Mr. Medline’s comments.
“A code has to be fair and bilateral. Both manufacturers and retailers need to tighten the ship a bit,” Mr. Graydon said. “… Any code will not take away the power of negotiation; it’s about establishing fair business practices. When you negotiate, you try to create value as well; when you arbitrarily demand reductions, you create no value.”
Both Walmart and Loblaw have reminded suppliers that they are making large investments in updating their stores and in improving e-commerce capabilities. Suppliers, meanwhile, have argued that it is not their responsibility to offset those companies' capital investments. And smaller independent retailers say the fee increases put them at an unfair disadvantage, because they do not have the market power to ask for the same terms.
“It’s a big breakthrough,” Gary Sands, senior vice-president of public policy for the Canadian Federation of Independent Grocers, said of Mr. Medline’s statement. “When you have all these different groups representing different sectors in the supply chain saying we have an issue – we now need to fix it. There’s no excuse for not moving forward on this.”
Mr. Medline said that the situation is bad for suppliers, for small retailers, for consumers who fear rising food prices and for farmers. While the company did not support regulation a couple of years ago, he added, Empire is now open to it as long as it imposes fair-dealing rules on both retailers and vendors.
“I think it’s time,” he said.
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