Sobeys Inc. is delaying by two months the implementation of its controversial overhaul of supplier payment terms, acknowledging it had botched its handling of the matter.
But some suppliers remain angry over the changes, saying the country’s second-largest grocer is pushing terms on them that will be a bigger financial burden for them and could ultimately leave consumers with less choice.
“I guess to a certain extent it’s better than it was, it gives people time to prepare,” Michael Graydon, chief executive officer of Food & Consumer Products of Canada, which represents suppliers, said in an interview. “But it hasn’t removed the problem, it just delayed it. … There are no winners in this for the manufacturer. The only winner in this is Sobeys.”
The Globe and Mail reported this week that Sobeys, which is owned by Empire Co. Ltd., told some suppliers on Monday they would be paid in as many as 60 or even 90 days – in some cases more than twice as long as the current payment period.
Michael Medline, CEO of Sobeys and Empire, told The Globe he was trying to “level the playing field” with his rivals as he moved quickly in spearheading a recovery plan for the company after its poorly executed takeover of Safeway Canada in 2013, under previous leaders.
The move came more than a year after Loblaw Cos. Ltd., the country’s top grocer, raised the ire of suppliers by charging many of them a new supply-chain fee of 0.79 per cent of the value of their orders.
Sobeys, in an April 1 letter to 4,800 suppliers, said the payment changes would come into effect the next day. The revamp consisted of six new payment terms from numerous previous ones.
But three days later – on Thursday – Mr. Medline personally wrote a letter to the “supplier partners,” saying the new payment terms would come into effect later: on June 1 rather than April 2.
“We missed a step by not respectfully giving you the time to implement these changes,” Mr. Medline said in his April 4 letter. “And we didn’t engage in the always necessary discussion surrounding such a decision. We could have done better as your partners – do things more in the Sobeys way.”
He said a review process is in place for suppliers that believe they should be an exception or are in the wrong payment-term category. “We will deal with the facts and we will treat you fairly,” Mr. Medline wrote.
He said in the past, the fragmented way Sobeys did business made growth impossible. “We’re taking steps on many fronts to simplify our business, be consistent, reduce complexity and create that level playing field.”
Sobeys spokeswoman Cynthia Thompson said on Friday that so far, 56 suppliers have expressed concerns or asked to speak with the company about the new payment terms.
Sylvie Cloutier, CEO of the Quebec Food Processing Council, representing suppliers in that province, said the postponement is “a temporary relief” but Sobeys’ “unilateral decision to extend payment terms is a symptom of a broader problem.” She said in recent years, major retailers drop grocers have used similar strategies, such as “arbitrary” wholesale price cuts, “to dig deeper in their suppliers’ pockets.”
She said the latest payment changes at Sobeys will cost food manufacturers millions of dollars and prevent them from investing in developing innovative products. The overhaul underlines the unequal balance of power between the big retailers and suppliers in an increasingly concentrated grocery field in most parts of the country, she said. “This food distribution oligopoly is creating the perfect storm for reduced competition and eventually higher food prices.”
Mr. Graydon called on the federal government to introduce a code of conduct, such as one in Britain that regulates industry practices and, he said, has led to lower prices.
Wendy Evans of retail specialist Evans & Co. Consultants commended Mr. Medline for trying to deal with suppliers more fairly. “Retailers can be tough, the grocery business is a tough business with razor-thin margins, but suppliers are partners and should be treated fairly.”
Steven Uster, co-founder of startup FundThrough, a lender that provides bridge loans and other financing to small businesses, also praised Mr. Medline for giving suppliers more time to plan. “But it doesn’t change the inevitable. … Imagine you’re a small-business CEO and have been planning your budget and cash flows for the year and then hear about this unilateral announcement. It really impacts your cash flow and makes you scramble."