Final hurdle clears for grocery code of conduct as Walmart, Costco sign on

Hey there, time traveller!
This article was published 18/07/2024 (813 days ago), so information in it may no longer be current.

All the major Canadian grocers are now on board for a grocery code of conduct, paving the way for industry guidelines that have been several years in the making.

The federal, provincial and territorial agriculture ministers made the announcement Thursday during their annual meeting in Whitehorse, saying the remaining holdouts Walmart and Costco have now agreed to sign on to the code.

“This is a positive step toward bringing more fairness, transparency, and predictability to Canada’s grocery supply chain and for consumers,” the ministers said in a statement.

Confirming the support of the five major retailers — Loblaw, Walmart, Costco, Metro and Empire — is an “important milestone,” said Michael Graydon, CEO of the Food, Health & Consumer Products of Canada association.

“It was critical that all of the retailers got involved, because it’s a very competitive business,” said Graydon, who led the group that created the code and now chairs its interim board.

“It kind of was an all-or-none situation. And I think they all respected that and came to the table.”

The voluntary grocery code is meant to level the playing field for suppliers and smaller retailers by providing guidelines for fair negotiations, including for the application of penalties and fees.

In addition to the national, regional and local independent grocers signing on, key suppliers of all sizes have agreed to the code, the board told the ministers in a report Wednesday, adding their goal is to implement the code by next June.

Federal agriculture minister Lawrence MacAulay said he’s “elated.”

“Now we have the five major retailers signing on, that’s good news for the whole supply chain,” he said.

MacAulay said he believes the code will bring more transparency, fairness and predictability into the food industry, though he noted it’s not meant to lower grocery prices.

The industry committee tasked with creating the code was established in response to contentious fees being charged to suppliers by large grocery retailers, an issue that came to a head in 2020 when Walmart Canada and Loblaw each introduced new supplier fees to help pay for infrastructure investments.

Progress on the code appeared to be in jeopardy last fall as it neared completion, with leaders from Loblaw and Walmart telling MPs they were concerned the code would lead to higher retail prices.

As a result, calls to make the code mandatory grew, with the House of Commons committee studying food prices telling Loblaw and Walmart in February that if they wouldn’t sign on, it would recommend the code be made law — an option that MacAulay had said he was exploring.

In May, Loblaw said it would agree to the code as long as other industry players would do the same, saying its concerns had been alleviated by changes to the document.

“The code now is fair, and it will not lead to higher prices,” said president and CEO Per Bank at the time.

After Loblaw’s announcement, attention turned to Walmart and Costco.

Walmart Canada is willing to support the current version of the code, which is now more balanced, said spokeswoman Stephanie Fusco in an email — though there are still important discussions to have about governance and dispute resolution, she added.

Fusco said the company already has good relationships with its suppliers and hasn’t seen the need for a code of conduct.

Graydon said the board has always been adamant that the code should be voluntary and industry-led.

“It becomes an important caution to us all that if we’re not careful, we don’t adhere, that at some point government may step in, and we don’t want that.”

The milestone is “great news for the industry,” said Gary Sands, a member of the code’s interim board and senior vice-president at the Canadian Federation of Independent Grocers.

But he thinks the code is also good news for consumers.

“When you bring more stability, fairness and transparency to the industry, that’s bound to have a positive impact on just relationships, on how prices are set.”

The board is now turning its attention to setting up the office that will oversee the code and hiring an adjudicator, said Graydon. He’s also hoping a request for government funding to support that work will be approved.

MacAulay wouldn’t confirm whether the funding will be approved, but indicated the agriculture ministers will be discussing the request.

“We’ll do everything to make sure that this is a success.”

Canada’s five biggest grocers have been under intense public and political pressure as the price of groceries has risen by more than 22 per cent over four years, with accusations of profiteering and some consumers launching a boycott of Loblaw earlier this year.

The grocers have defended themselves against the accusations, telling MPs that their companies are not responsible for higher food prices.

“The truth is we are at the end of a very long food supply chain that has economic inputs at every step and stage,” Empire president and CEO Michael Medline told the committee in March 2023.

More recently, Bank and Loblaw chairman Galen Weston pushed back on what they called “misguided criticism” of the grocer as calls for a boycott gained steam online.

Amid the pressure on grocers to stabilize prices and agree to the grocery code, the Competition Bureau has also launched investigations into the parent companies of Loblaws and Sobeys for alleged anticompetitive behaviour.

The bureau is looking into the use of property controls in the sector, clauses in commercial leases designed to restrict other potential tenants and their activities. It argues that such clauses limit competition not only for smaller Canadian grocers, but for potential foreign entrants to the sector as well.

Industry Minister Francois-Philippe Champagne has said he’s seeking a foreign grocer to come to Canada and help strengthen competition.

This report by The Canadian Press was first published July 18, 2024.

Companies in this story: (TSX:L, TSX: EMP.A, TSX:MRU)