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Grocers call for code of conduct between retailers, suppliers

File photo of a customer shopping for groceries in Toronto.

Deborah Baic/The Globe and Mail

Some grocery representatives and experts are calling on Ottawa to introduce a code of conduct to regulate the increasingly heated relations between retailers and suppliers on issues such as grocers' demands for retroactive vendor discounts.

The matter has been raised with the federal Competition Bureau as it reviews the $12.4-billion bid by grocery giant Loblaw Cos. Ltd. to acquire Shoppers Drug Mart Corp. Industry observers are concerned about growing tensions between grocers and suppliers in an increasingly competitive market that is dominated by a few big players feeling the pressures of rapidly expanding U.S. discount titans.

The tensions surfaced late last year when Sobeys Inc., which acquired Safeway Canada in a $5.8-billion deal, demanded suppliers provide it with retroactive "synergy" price breaks and said it will not accept any increases in 2014.

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Major suppliers, including Kraft, Nestle and Coca-Cola, are making their own counter-demands on retailers for minimum advertised prices to ensure their products retain their brand image and aren't used simply as loss leaders.

Now some industry players and watchers say it's time for a code of conduct, modelled on codes in Britain and Australia where the grocery sector is also controlled by a few big retailers. Ottawa has introduced codes of conduct in the wireless and card payment sectors, among others.

"It's not a perfect solution – it's not fool proof – but it's a step in the right direction," said Kyle Murray, director of the University of Alberta's School of Retailing. "You see concerns arising when Loblaw buys Shoppers, Sobeys buys Safeway and Wal-Mart increases its market share. You have a few major players that control a lot of the market."

In Canada, the three largest supermarket chains – Loblaw, Sobeys (which is owned by Empire Co. Ltd.) and Metro Inc. – make up more than 70 per cent of food retail sales, according to the Canadian Federation of Independent Grocers.

The federation has asked the federal government to set up a code of conduct under the auspices of the Competition Bureau.

"It is time the government said no to the interests of Bay Street 'efficiencies' and stood up for the interests of Main Street and small business," the federation said in a submission to the bureau last year.

A code would help ensure a level playing field in such issues as retailer demands from suppliers for funds for stocking shelves, product placement and even store renovations. It would also oversee disputes over suppliers' recent efforts to impose minimum advertised prices on retailers for some key products, such as Coke and Delissio frozen pizza. In the past several months, suppliers have imposed the policies, warning they will withdraw flyer and other promotional payments for the products – and possibly suspend or limit shipments of them – if the pricing is not implemented.

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Still, the Retail Council of Canada, which represents major grocers, says a code isn't necessary. "I'm not certain there needs to be intervention to address what the marketplace has created," said David Wilkes, senior vice-president of the council.

Izabel Flis, research analyst at Franklin Bissett Investment Management, said a code of conduct isn't necessary because consumers already benefit from fierce competition from discount retailers such as Wal-Mart Canada Corp. and Costco Wholesale Corp. as well as the traditional grocers. Last year, low-cost Target Corp. also arrived here. In contrast, in the wireless sector, which adopted a code in 2013, the three key industry players control more than 90 per cent of the market, she said.

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