Grocery Business

 

April 15, 2014

 

Industry mulls code of conduct

 

Debate is heating up in the wake of calls for guidelines to govern relationships between grocery players. In recent weeks widespread reports of possible abuses, including retrospective changes to contracts between suppliers and grocers such as “new store start-up fees,” and “synergy savings” have pushed Food & Consumer Products of Canada (FCPC) to respond.

 

“Canada’s increasingly consolidated grocery sector requires new oversight to ensure that there is a vibrant and sustainable marketplace,” says Adam Grachnik a spokesman. “Grocery codes of conduct are emerging as a global trend to provide a more transparent, stable and fair business operating environment.”

 

Tom Barlow, president of the Canadian Federation of Independent Grocers agrees. “Large listing fees, deductions because of “shrink,” refusal by some retailers to accept club packs, and similar practices all reduce competitiveness in the market,” says Barlow. “This is a particular challenge for independents, as they don’t have the leverage to get the same terms as the big guys.”

 

Several flavours of codes of conduct

Codes of conduct (which can be voluntary or statutory) are a fairly recent innovation in the grocery sector. They have made headway mostly in countries where there is significant retailer concentration, such as the United Kingdom and Australia. However those lobbying for new rules here in Canada, where abusive practices by monopolies or oligopolies are governed by the Competition Act, face several challenges.

 

The first is that despite reports that some grocers are moving close to the line, consistent violations of laws or regulations have yet to be demonstrated. Getting the grocery industry on the same page is also an issue, as many suppliers are reluctant to talk openly about the issue for fear of reprisal. Complicating things further is the fact that that as in the old Indian tale of blind men describing an elephant, those assessing codes of conduct, tend to look at them in terms how they affect their own particular interests.

 

The Canadian Federation of Independent Grocers for example is focusing on ways to even the playing field with its larger competitors. We need to see the industry come together on some voluntary guidelines,” says Barlow. “That includes a clear definition of how business is conducted between suppliers and retailers.”  

 

Michael Hutchings, a United Kingdom based lawyer, has been fighting abusive grocery industry practices there for more than a decade. After a long struggle he has concluded that it is far better for smaller providers such as farm marketing boards and other associations to lobby for enforceable standards. “We tried a voluntary code here but it was ineffective because there was no enforcement mechanism,” says Hutchings. “The new UK code, which has assigns an adjudicator to watch over the industry, works much better, as (she) can often handle contentious issues even before they ever become public.” 

 

Another big win for suppliers in the UK, which is one of several countries in which suppliers face problems similar problems to those in Canada, was that they can now file complaints anonymously via trade associations. “There tends to be code of silence that develops among suppliers that sell to buyers in a concentrated industry, as they worry they will be blacklisted if they speak out publically about abuses.”

 

A harmonious industry

Grocers for their part are less convinced that action is needed. Eric LaFleche, CEO of Metro, Canada’s third largest grocery distributor has publicly rejected calls for a code of conduct, saying that grocers are known to be “easy negotiators.”  Sobeys’ CEO Marc Poulin describes relationships with suppliers as “harmonious.”

 

David Wilkes, senior vice-president (grocery division) of the Retail Council of Canada agrees, citing a highly collegial climate at industry events which are characterized by close business relationships. “Don’t confuse strong competition with something that requires a regulatory response,” says Wilkes. “The Competition Bureau already has the tools it needs to enforce the Act. And don’t forget that pressure in supply channel relationships goes both ways. Suppliers for example have been pushing retailers on the issue of minimum prices.”

 

As in most contentious issues both sides appear to have a point. Canada’s highly concentrated grocery industry, which has long seen far higher margins than are common in the US, is ripe for increased competition. So it comes as no surprise that Wal-Mart, Target, the pharmacies and even Canadian Tire, are elbowing their way in. Grocers’ reaction: further consolidation (Sobeys’ $5.8 billion acquisition of Safeway Canada and Loblaws’ $12.4 billion deal to buy Shoppers Drug Mart Corp.) also comes as no surprise.

 

Grocers argue that those moves aren’t enough and that suppliers need to kick in more. Wilkes cites a strong sense of collaboration on a wide variety of issues ranging from food safety to product identifiers and stewardship, as another signal that no intervention is needed.

 

Where things will go now is anyone’s guess. Insiders say that there is little sign that the Harper Government will take any immediate action. That leaves it up to supplier pressure groups to see if they can build public support for their grievances.

 

peter@peterdiekmeyer.com

 

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