Grocery code of conduct will raise prices, not lower them, Loblaws and Walmart tell lawmakers

The head of Canada’s biggest grocery chain says the looming implementation of the grocery code of conduct would lead to higher prices for consumers, not lower ones.

Speaking at a House of Commons agriculture committee meeting on Thursday morning on stabilizing food prices, Galen Weston, executive chairman of the Loblaws group of companies, said his company and the industry at large have been unfairly targeted for food price inflation.

He says Loblaws has been an “active participant in discussions with government” on the topic of food prices, and noted that the company has “meaningfully” reduced its prices on staple items that make up about 10 per cent of its chain-wide sales.

“This is on top of super low everyday pricing and our discount stores where we routinely sell products like bananas, sugar, and milk all below cost,” he said. “We know if we do not provide real value, customers will shop elsewhere.”

Parliamentarians grilled Weston and Walmart Canada CEO Gonzalo Gebara on the topic of grocery prices, and a frequent topic of inquiry was the grocery code of conduct — a draft proposal that has been in the works for years meant at codifying some ground rules for how retail chains interact with their suppliers.

Other food retailers and some manufacturers have expressed their support for the code, but Loblaws and Walmart have been more reticent. In Loblaws’ case, Weston said they are concerned about a number of clauses in the code that could increase their cost of doing business and in fact make retail prices higher, not lower, as some people are hoping it will.

“As the code is currently drafted our strong conviction is that it will raise prices,” Weston said. “The principle is fine, but the way it’s drafted is what we have an issue with.”

Weston outlined a series of specific details within the proposed code that he takes issue with, including a dispute resolution mechanism than gives control to an outside third party.

Another section governing written contracts between retailers and their suppliers is problematic for Loblaws, as is a section concerning various charges that suppliers are levied for services like stocking, listing, position, promotions, marketing costs, unsellables and shrinkage that they have to pay to have their wares make it on to the store shelf in the first place.

Lastly, Loblaws objects to another clause in the proposed code that governs whether or not retailers are allowed to charge suppliers a fee when they reject an order because they can’t fill the requested size of the order.

While Weston conceded that Loblaws would abide by the terms of any officially enacted code, he says as currently constructed it will do nothing to bring down grocery prices.

“We are here being held accountable for high food prices that are not the direct responsibility of the grocery industry,” he said. “Now you’re asking us to sign onto something that we believe in our bones is going to do the opposite of what other people say it’s going to do.”

Grocery chain leaders push back at price-gouging allegations

At a committee hearing in Ottawa this week, the heads of Loblaw, Metro and Empire Foods faced tough questions from parliamentarians about why food prices continue to skyrocket. All three pushed back forcefully against allegations they are profiteering from high inflation.

Gebara with Walmart struck a similar tone. “We want to make sure the code has all of the different provisions and conditions so that we can conduct our business to offer low prices every day for our customers across Canada,” he said. “We believe that the code is not in a position for us to commit to signing.”

Other food retailers including Metro and Sobey’s have been more publicly supportive of the code. Speaking at the same committee on Monday, Sobeys head Michael Medline says his company has been actively supporting the implementation of a grocery code of conduct for more than three years.

“Although we are ready, willing and able to sign the code today, we now have serious doubts as to whether the code will actually come into effect due to recent opposition by some retailers. In no way do we believe, nor does evidence show, that a grocery code of conduct would lead to higher food prices or less choice for Canadians. In fact, quite the opposite,” Medline said.

Code will level the playing field: independent grocers

Gary Sands, vice-president of the Canadian Federation of Independent Grocers, told the committee on Monday that the code is required to level the playing field between the major players like Loblaws and the almost 7,000 smaller grocers he represents, because they don’t have the same leverage to demand lower prices, and often have to pay more because suppliers need to offset concessions they’ve had to give elsewhere.

“We don’t point our fingers at our supplier partners, we understand the pressures that are driving up their cost,” he told the committee. “An independent grocer has no leverage to demand a price freeze or a drop in price.”

He says the code is good for everyone because it will get rid of “distorted market practices … and onerous fees imposed by some large retailers.”

“This code is not a document comprised of overly prescriptive regulations, but simply a straightforward set of principles of good behaviour developed by industry itself. It won’t increase food prices, as Loblaws has claimed — no one in industry would support any measure that would do that.”

Michael Graydon, CEO of the Food, Health & Consumer Products of Canada association and chairman of the interim board of directors of steering committee drafting the code, has pushed back on the notion that it will raise prices for consumers. “We just don’t believe that that’s true,” he said last month.

The federal and Quebec agriculture and food ministers are calling on all members of the grocery industry supply chain to sign onto a code of conduct.

Federal Minister Lawrence MacAulay and Quebec Minister Andre Lamontagne said they’re disappointed to see the grocery code of conduct has still not been launched after years of work.

They’re also disappointed that “supply chain partners are hesitant to move forward” with signing on to the voluntary code, the ministers said in a statement Thursday.