Industry groups call for a code of conduct

Some factions within Canada’s grocery industry are calling for Ottawa to implement a code of conduct.

Similar to those for the telecom and credit card sectors, a code of conduct, say groups such as the Canadian Federation of Independent Grocers (CFIG), would govern an increasingly fractious relationship between retailers and suppliers.

They say that increased industry consolidation, exacerbated by razor-thin margins and heightened competition from U.S.-based retail giants, is at the heart of a series of demands and counter-demands by the two sides.

Things came to a head with an infamous Christmas Eve letter from Sobey’s Inc. – which recently acquired Safeway Canada in a $5.8 billion deal – informing suppliers that it would not accept any cost increases in 2014 (with the exception of pharmaceutical supplies and commodity items such as sugar).

The letter went on to say that the grocer would deduct a “synergy savings rate” of 1% from supplier invoices beginning in January.

Sources said that Sobey’s demands are “non-negotiable.”

Garry Sands, vice-president of CFIG, said such a stance puts independent grocers at a severe disadvantage.

“We don’t have the leverage to send out Christmas Eve letters,” he said. “It’s a concern for us because we know independents don’t have the leverage to be able to recoup costs in other ways. When an independent is gone, it’s gone – it’s not coming back.”

At the same time, there are also reports that several major manufacturers of items ranging from soft drinks to coffee and frozen pizza have threatened to pull funding for store flyers and other promotional activity unless retailers agree to set minimum advertised prices.

“When you look at the letters that have been going out, and the back and forth between suppliers and retailers, obviously the marketplace is not working as it should be,” said Sands. “When that’s happening, you need something to deal with it.”

CFIG appears to have some allies in its fight for a code of conduct.

In a statement to Canadian Grocer, Food & Consumer Products of Canada, which represents several major manufacturers – among them Campbell’s, Coca-Cola, Kraft and Heinz – said that grocery codes of conduct are an emerging global trend that provide manufacturers and retailers alike with a “more transparent, stable and fair business-operating environment.”

“Now is the time for government, retailers and manufacturers to come together to determine how a code of conduct can best serve Canadian shoppers and the industry,” said the FCPC statement.

In Australia – where two chains, Coles and Woolworths, dominate the grocery industry – a voluntary code of conduct was instituted last year.

The code prevents the major chains from using suppliers’ intellectual property to develop their own private-label products and preventing retailers from charging suppliers from products stolen from their supermarkets.

The United Kingdom has had a code of conduct in place since 2001. It prevents supermarkets from using their size to make unreasonable demands of suppliers and to ensure that they honour prior contracts.

A code of conduct does not have the full support of the industry, however.

While the Retail Council of Canada did not make a representative available to Canadian Grocer by press time, senior vice-president David Wilkes recently told The Globe and Mail that a code was unnecessary to address a situation the marketplace has created.

CFIG’s Sands acknowledged that the major retailers can use their scale to negotiate favourable deals with suppliers, but said a code would help independent grocers remain competitive.

“There already is no level playing field,” he said. “What we’re arguing for is to have a mechanism to ensure that our independents can at least stay on the field.”