Local Food Producers Say Voluntary Rules Aren’t Enough To Check Big Grocers’ Power
MONCTON – Vendors and small grocers are worried that a Canadian Code of Grocer’s Conduct will do little to force large retailers like Sobeys and Loblaws to relinquish their iron grip on the grocery market.
The code of conduct, announced this month by Agriculture and Agri-Foods Canada (AAFC), is expected to be implemented at the end of this year. It’s being developed by players in the Canadian agri-food industry but, crucially, complying with it will be voluntary.
The code is a bid to create fair, transparent supply chain dynamics between grocers and suppliers. It establishes rules around supplier fees and aims to create a more competitive fair and transparent market.
Demand for a code of conduct has been strong from the food sector, which cites imbalances in a grocery market dominated by Canada’s five large grocers: Loblaw, Sobey’s parent Empire Co., Metro, Walmart. and Costco.
According to a 2021 government study, those five companies control 80 percent of the country’s grocery market.
Vendors who sell the food to those grocery chains have been calling for a code of conduct for a long time, citing unfair policies around fees and a lack of competition. Many of them say a code won’t mean much if it’s not enforced and binding.
Two Maritime food vendors who do business with Sobeys and Loblaw spoke to Huddle about the proposed code on condition of anonymity.
Both requested their names not be used because they feared negative impacts to their business for speaking out against what they consider the big grocers’ unfair practices. They told Huddle they would have little recourse if anything they said was held against them in a market where very little competition exists between big players.
Voluntary Code
One New Brunswick-based vendor said he’s not sure the code of conduct will solve any of the issues small manufacturers like him face.
The vendor says there is a massive “imbalance of power” between big grocers, who control huge swaths of the grocery market, and small, local suppliers.
“They’ve used their power to unilaterally impose fees and fines on manufacturers,” he says.
If, for example, a big grocer like Superstore ordered 1,000 cases of product and he could only deliver 900 because he was short-staffed that day, they can say “too bad, you’re fined $1,000.”
He stressed that he can’t do much about those fines because “when a third of your business is with Loblaw, and Loblaw is playing hardball, what are you going to do?
A legally compulsory code of conduct would stop big grocers from delaying things like vendor requests to sell their products for more money — something that’s becoming increasingly common (and necessary) as inflation drives up production costs.
In the most egregious of cases, the New Brunswick vendor says he had to wait as many as six months for his requests to go through.
“They don’t hesitate to use their leverage to squeeze companies, which disproportionately affects small-and mid-sized businesses,” he says.
He argues the big grocers have created a non-competitive environment by snapping up local grocery chains across the country and that the government hasn’t done enough to stop the consolidation of the food business.
He says this consolidation has been going on in New Brunswick for decades.
“That’s why so many smaller companies have shut down and a lot of food in Atlantic Canada comes from Ontario, and you’re buying cookies from a plant somewhere in Iowa instead of those made in the Maritimes,” he said.
“If you look at food companies in Atlantic Canada, we’re always described as bigger than the small guys, but smaller than the big guys. We’re mid-sized, regional food companies and are the folks that get squeezed the most in these processes.”
Now, he says, the government is proposing a voluntary code of conduct for grocers that doesn’t feel particularly useful.
“What [the government] is working towards is a voluntary code of conduct. This may or may not have an arbitration process associated with it. And even if it does, it’s not mandatory; it doesn’t matter if it doesn’t have teeth,” he said.
“It’s going to say, for example, that you can’t unilaterally assign a fee to a [vendor] without a certain negotiation, but it’s all voluntary, so if you don’t agree, you don’t have to follow it.”
Overdue
A Halifax-based vendor said that a code of conduct is overdue, and a good idea in theory.
“As a small brand that’s grown up through national distribution with the bigger grocers, we’ve definitely suffered major financial pain at the hands of what seem to be completely random charges them. And, honestly, you can’t even fight some of the charges that they just slap on you and feel like you just have to take it,” the vendor said.
“It’s the cost of doing business. If you want to roll with the big boys, this is what you’ve got to prepare yourself for. It leaves a really sour taste in your mouth.”
The vendor noted that food vendors looking to scale in Canada and build their brands have no choice but to work with Canada’s ever-shrinking pool of large grocers.
“You need to take it to the big guys and proceed to get everything beaten down,” the vendor said. “A lot of brands don’t survive it. There are a lot of small brands that go into these big stores and they kind of get gobbled up and go bankrupt.
Cautious Optimism
Hossein Barar, the owner of Dolma Foods, said he believes a code of conduct is a step in the right direction and that it will benefit him as a small independent grocer – but he can’t be entirely optimistic about the idea.
“I am a little bit cautious because there are always details that can make what [big grocers] practice a little different from what they present,’ Barar said.
Ultimately, Barar noted, Canada’s biggest players decide whether they play by the rules set by the code.
“If they decide it doesn’t matter, they can play around with the rules as much as they want,” he said. “Time will tell. My gut feeling is that they aren’t going to play by the rules.”
He noted that Canada’s largest grocers have enormous revenues and income—and they’re motivated to stay at that size and maximize their profit. Another issue, he said, is competition.
“In the United States, they can do that because there are a lot of players and more competition there. In Canada, we don’t have competition among grocery stores,” he said.
“Smaller guys like us don’t count, we’re a corner store compared to them.”
Corporate Support
Of the five largest grocery retailers, one has come to the front as an outspoken proponent of a code. Michael Medline, the CEO of Sobeys’ parent Empire Company, has publicly endorsed a code of conduct.
In Postmedia coverage, Medline described the relationships between grocers and food producers as “the most frayed” he’s seen in decades. He said a code of conduct could help that.
The Halifax vendor was skeptical of Medline’s endorsements. They claimed Sobeys is “among the worst for random, untraceable charges for extremely silly things that you can’t ever fight them for.”
The vendor said it’s ironic to see someone who allows the poor treatment of small brands to be calling for better regulation.
The vendor told Huddle their company does business with Costco and “their culture of doing business is so different from Loblaws or Sobeys,” with prompt payment and no uncertainties surrounding the rules.
“It’s straightforward and so efficient. People think Costco is the Big Bad Wolf when it comes to groceries, and honestly, they treat their vendors very well,” the vendor said.
“There could be lessons learned by other chains on how to do business, from Costco.”
The Halifax vendor stressed that not only is it troubling to get “hosed, financially” by big grocers but that they hold all the market share, leaving no alternatives.
Sam Macdonald is a Huddle reporter in Moncton. Send him your feedback and story ideas: [email protected].