Two weeks ago, a group of top industry stakeholders announced they were banding together to form the Canadian Food Industry Collaborative Alliance, to craft an industry code of practice to address some of the issues that have long plagued the industry: punishing compliance fines, unilateral (and unnegotiated) fees and other unfair trading practices.
The move comes a few months after Canada’s second largest grocery retailer, Empire Company Ltd, working with Food, Health and Consumer Products Canada (FHCP), proposed a fully formed code of conduct for the industry.
While Empire's Michael Medline and FHCP's Michael Graydon say they're “delighted” the industry has agreed to a code of practice, they're wondering why: a) it’s taken the rest of the industry so long to join them, and b) the Alliance wants to start all over again rather than use their code as, at the very least, an advanced starting point.
Canadian Grocer spoke with Graydon and Medline about the formation of the Alliance, what it could mean for their code, who enforces it, and what happens next. (Click here for more of the retailer perspective including RCC, CFIG, Walmart and Metro.)
How do you feel about the Alliance?
Medline: “We couldn't be more pleased to see last week's announcement. A year ago, there was no recognition by retailers that there was even a problem in the industry, and absolutely no wish for a code,” he said. “I guess it's too early to declare victory, but I never thought we would move the industry along with such velocity.”
Graydon: “This has been a long journey for us. A journey that really didn't attract very much attention with retailers for a long period of time—actually it attracted significant resistance,” he said. “We're delighted they finally recognize a code of conduct is required… The dialogue changes quite significantly towards solutions versus a conflict as to whether something's required or not.”
What the code should fix
Graydon: “Our code has never been designed around controlling pricing, controlling promotional activity, any of that. It's about creating the opportunity for predictability. And if all of a sudden out of nowhere, these asks come [from the retailer] to fund capital investment in their business, we don't think that's fair,” he said. “You end up with that lack of economic certainty to plan your business, invest in your business and what happens is, companies are finding it difficult to make capital investments in their business.”
Medline: “I think everyone should be treated with respect and then compete like heck,” he said. “It's still a competitive market where you're trying to win, and you're negotiating really hard. All I'm saying is, let's do it under some sort of rules where everyone is treated fairly and can plan ahead. And everything's transparent so there's not sudden changes to the market that hurt especially small retailers or smaller supplier partners.”
Starting over instead of using the FHCP / Empire proposal
Graydon: “We've put a lot of effort into this. We have done a lot of research … And I think the work that we've done with Sobeys has been taken to a level that we actually have a very strong foundation to work from,” he said. “It would be terrific if the Alliance would see that value and rather than start the process all over again, look at what we've provided and enhance it.”
Medline: “I think we actually do have a real blueprint that we set out for the future of relationships in our industry, and I don't know why it needs to take 18 months to start fixing up this industry.”
Regulation and enforcement
Whether or not the code should be regulated by government appears to be THE biggest hurdle between the two groups. The Alliance does not want a regulated code; the Retail Council of Canada has been very clear on this point, saying it would mean a different code for every province and territory. Medline and Graydon say it has to be government run and government enforced to ensure everyone adheres to the code.
Medline: “I don't believe a code is worth anything unless it's enforced. And everyone has to play on a level playing field in terms of following rather simple values. I don't think it's that difficult,” he said. “We do not think that there should be 11 or 12 codes across the country. We think there should be one code, is what we put forward. We said we're open to the most simple and efficient enforcement that wouldn't be bureaucratic.”
Graydon: “It's one thing to say that it's a voluntary program versus regulated, but where are the teeth? How can you guarantee that any retailer is going to participate? We're big believers in sharing best practice, and best practice will demonstrate that in the U.K.—the code that we used as the foundation and Canadianized it to reflect the issues that exist in Canada—did not work as a voluntary code because the retailer's played games,” he said. “I do not believe that a mandatory code will work unless the teeth can in fact put them in a position where there is some sense of retribution for non-compliance.”
Medline: “We believe the code we put forward with the FHCP is the best way forward. Now let's just figure out how to get it into practice as quickly as we can. And make sure that it's in some way enforced so that everyone has to follow it.”
Graydon: “We've put forth a viable solution. What the Alliance put forth is a process to get to the solution. And I guess our point is, why don't you just start with ours and fine tune it. Why are you going to go back and do all the research that we've done, replicate the work that the working group has done, and replicate everything again to come out with the same conclusion.”
Concerns about problems in the industry led to the creation of federal, provincial and territorial agriculture and food (FPT) ministers last year to look at the grocery industry, including the introduction of unilateral costs on suppliers, fining suppliers for shortages and other issues. Their report on recommendations is supposed to be released in July.
The Alliance will await the go-ahead from FPT ministers before beginning work on the code, with first proposed texts presented next March, and a final code with an enforcement framework presented by December 2022.