Opinions divided on grocery code of conduct

The bread price-fixing investigation has renewed calls for a code of conduct for the grocery industry but it appears Ottawa isn’t currently interested in playing a role.

“No plans have been announced regarding a code of conduct in the grocery sector,” was the response from Innovation, Science and Economic Development Canada, the federal government department that would potentially oversee a code of conduct, when contacted by Canadian Grocer. “It is not likely that there would be a central role for the government should any sectoral code of conduct be sought among industry participants.”

For several years, the Canadian Federation of Independent Grocers (CFIG) has been calling for a Code of Conduct for the grocery sector, like those adopted in Australia and the United Kingdom.

A code of conduct would constitute a new voluntary rulebook for the industry that would include guidelines for fair and transparent practices.

“While the federal government has a regulatory and oversight role in some economic sectors that feature codes of conduct, such as telecommunications and financial services, this is not the case in the grocery sector,” said the statement. “Here, the Competition Bureau serves as the enforcement agency that investigates suspected breaches of the Competition Act, and advances the matter to litigation if necessary.” This is what is happening with the bread price-fixing investigation, with price fixing a violation of the Competition Act.

CFIG acknowledged that price fixing is covered by the competition act and, therefore, beyond the scope of any conceived code of conduct. But the fact it happened—and for so many years—proves the largest retailers in the industry have accumulated too much power, are taking advantage of that power in ways that distort the market and therefore need to be restrained in some additional way. “We believe that has helped illuminate some of the things going on in the industry that are not good,” said CFIG’s Gary Sands.

“We need to draw a distinction between legal acts, illegal acts and those practices in the industry that aren’t necessarily illegal but are having an impact on healthy competition,” he added.

The owner of one Ontario-based independent grocer, who asked not to be named, said the bread price-fixing revelations weren’t surprising to him.

“The nature of the beast is one that without a code, the most powerful will always try to take advantage of their position,” he said. “We are in favour of a code so that there are enforceable measures in place for when poor behaviour occurs.”

Without a code of conduct there is little to deter bad behaviour in the future, he said.

“Customers are angry, but their memories are not long,” he said. Even if they want to avoid shopping at the big chains in response to the bread price fixing, eventually they’ll return because the big chains are so dominant in the market.

If CFIG is looking for allies to lobby the government for action, it may have one in the Canadian Federation of Independent Business, which represents more than 100,000 small businesses on both the retailer and supplier side.

There is a power imbalance in the grocery sector and because of that a code of conduct is “an idea that has a lot of merit,” said CEO Dan Kelly.

There have been a “whole host of complaints” against the large retailers and distributors. Suppliers have faced rollbacks and rebates and contracts haven’t been honoured. “It has been really tough to take,” he said.

“We have good luck with codes of conduct in the past,” he said. “We have pushed for one, for example, in credit and debit card industries which has certainly, not fixed, but improved things considerably.”

Metro and Giant Tiger declined to comment on the possibility of new rules for the industry. Loblaw, Walmart and Sobeys did not respond to requests for comment.

But Canadian grocery and food industry expert Kevin Grier thinks a code of conduct would be a bad idea.

“A regulated code of conduct would benefit no one, including consumers,” he said. “The Canadian food distribution system delivers consumers a very wide choice of retail food choices and venues from high end to discount to warehouse clubs to ethnic and e-commerce.”

The Canadian market is actually “remarkably efficient,” and the recent extended period of retail price deflation illustrates how competitive it is, he said.

There have always been those who claim there is too much consolidation in the market and want more regulations. But if anything, a code of conduct would do more harm to independent grocers. “Large companies would be able to handle the regulatory burden most efficiently compared to smaller grocers,” he said.

David Wingfield is an expert in Canadian competition law. He led the antitrust/competition law division of the Canadian Department of Justice between 2011-2014.

Today, as one of the lawyers appealing to represent Canadian consumers in class actions against the grocers allegedly involved in bread price fixing, he’s preparing a case against the big grocery retailers. But, he is also strongly opposed to a code of conduct.

“I don’t think they are a good idea,” he said. Canada has laws to guard against anti-competitive practices with the threat of criminal prosecution when competitors collaborate unlawfully, such as by fixing prices. A code of conduct seeks to exert control over how players in the industry compete and leads to more coordination and less competition, he said.

“I am not in favour of a code of conduct.”