As grocery regulation process nears its end, Loblaw raises concerns about affordability

The Canadian industry’s largest player is expressing concerns that the completion of the grocery regulation process could aggravate food inflation.

In a letter sent on November 1st, Loblaw Companies Ltd. raised the alarm that the guidelines could “escalate food costs for Canadians by over $1 billion.” Can do, and has been achieved by. Canadian Press.

Loblaw’s Chief Financial Officer, Richard Dufresne, stated in the letter that the company cannot endorse the current version of the code and requested a special meeting of an industry sub-committee to address Loblaw’s concerns.

Loblaw spokesperson, Kathryn Thomas, mentioned in a statement that the draft code poses “various challenges” believed to jeopardize product availability and increase food prices. The statement also referred to potential “costs of $1 billion,” which Thomas clarified to be additional expenses for Loblaw’s customers.

Loblaw is not the only grocery retailer expressing concerns about the code. Walmart Canada spokesperson, Sarah Kennedy, stated via email in late October that the company supports initiatives beneficial to customers but is cautious about adding unnecessary burdens that could raise the cost of food, “particularly in times of inflation.”

Grocers are under pressure from the federal government to stabilize food prices following high inflation rates and a series of interest rate hikes impacting household budgets.

Michael Graydon, CEO of the Canadian Food, Health, and Consumer Products Association, and co-chair of the steering committee that developed the code, urged both companies to give the code a chance, highlighting that the code’s effectiveness would be diminished without their participation.

“Sign on, become an active participant, stay engaged,” Graydon emphasized, adding that the code would undergo review after its implementation.

“But sitting on the sidelines and criticizing the process… is not in the industry’s best interest,” he added.

The code is nearing completion and is expected to be supervised by a nonprofit organization by the end of the first quarter of 2024, according to Graydon.

Loblaw’s letter cited specific provisions of the draft code, claiming that they would make it more challenging for retailers to hold suppliers accountable, create uncertainty in supplier-retailer relationships, and impose limits on prices, availability, and discounts. It poses a risk to existing programs.

Graydon mentioned that the committee prefers not to discuss the points raised in Loblaw’s letter through media channels and would instead address them with Loblaw directly during an upcoming meeting.

However, both he and Gary Sands, Senior Vice President and committee member of the Canadian Federation of Independent Grocers, disputed the $1 billion figure cited by Loblaw.

Graydon stated, “There is no evidence to suggest that the code will result in increased food prices or negatively impact retailers’ ability to meet consumer demands.”

Sands added that he, too, would sound the alarm if he believed the code would lead to inflation, but “we don’t believe that’s true.”

Founded in response to industry demands addressing the fees charged by prominent grocery retailers to suppliers, the committee responsible for the code’s development gained public attention in 2020. That year, Walmart Canada announced fee increases, and a national purchasing group representing Metro Inc. informed suppliers of similar expectations. Shortly after, Loblaw also raised its fees.

Michael von Massow, a food economics professor at the University of Guelph, expressed that it is not surprising to witness two major players in the market – one being the largest Canadian grocer and the other a significant U.S. player – voicing concerns about the code of conduct.

“Frankly, they likely have the most to lose,” he remarked.

Metro and Empire Co. Ltd., the owner of Sobeys, reiterated their commitment to adopting the code in statements released on Monday. Costco Canada did not respond to a request for comment.

Should Loblaws and/or Walmart ultimately decide not to adhere to the Canadian Code, Graydon stated that an alternative approach may be necessary to address the sector’s issues.

“I believe we’ll have to engage in meaningful discussions with various government bodies regarding regulation,” he remarked.

Quebec Agriculture and Food Minister, André Lamontagne, who co-chaired a working group established in 2020 to assess the fees charged by retailers to suppliers, affirmed that years of hard work were invested in bringing the code to its current state, with continued efforts underway.

A report released by the group in July 2021 proposed that a regulated or legislative approach to addressing these fees would require provincial action but could result in a fragmented approach.

Lamontagne did not indicate whether Quebec would intervene if not all grocers agreed to comply with the code.

“I’m always optimistic,” he expressed in a French-language interview.

The federal food minister also refrained from commenting on the necessity of regulations.

“In July, federal, provincial, and territorial ministers were updated on the significant progress made during the industry consultation held in May 2023, and all industry key players, including large retailers, were urged to participate and support the initiative,” Agriculture-Food Minister Lawrence McAuley stated in an email.

However, von Massow suggested that if the code were violated, there has been and could continue to be political will to introduce regulations.

“I think the current climate heightens the desire for this and creates the perception that governments are taking action to ensure affordability,” he concluded.

Graydon believes that given the pressure exerted on retailers to stabilize food prices and the accusations of “greed inflation” raised by consumers and politicians alike, rejecting the code may prove detrimental for grocers.