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Who should pay for the big shift to online grocery shopping? A fierce battle is breaking out and suppliers say consumers could suffer

Who should pay for the big shift to online grocery shopping? A fierce battle is breaking out and suppliers say consumers could suffer
Business
Shopping for groceries online skyrocketed during the COVID-19 pandemic, accelerating a shift that was already underway for most major Canadian grocers. But while many love the convenience of home delivery, it comes at a steep cost — and a fierce battle is brewing over who’s going to pay for it.

Walmart Canada was the first to download some of the cost of expanding its e-commerce onto suppliers, and that seems to be setting a precedent for other Canadian grocery giants to do the same.

But what does this mean for consumers? Suppliers and some experts say less quality, less variety, higher prices and a weaker Canadian food system.

“In the end, the consumer will pay for this,” said Sylvain Charlebois, a professor in food distribution and policy at Dalhousie University.

In a letter to suppliers July 24, Walmart Canada said it will charge an “infrastructure development fee” of 1.25 per cent of the price of products sold to Walmart. It will also charge suppliers another five per cent on the cost of products sold through e-commerce.

Just four days earlier, the company had announced a $3.5-billion expansion in Canada, including renovating 150 stores over three years and creating two new distribution centres.

The fees are meant to offset some of the cost of these investments, including an “accelerated expansion” of the company’s e-commerce program. The fees kick in Sept. 14.

In an emailed statement, a Walmart Canada spokesperson said the new fees are a “carefully considered business decision” meant “to offset a very small portion of Walmart’s investment costs,” including several specific investments in e-commerce.

“We believe the program is fair and that our suppliers and Walmart can continue growing together,” they said, adding there is currently no end date to the fee program.

This isn’t the first time a major Canadian grocery store has assigned fees to its suppliers to offset costs, said Charlebois — in fact, it’s part of a long-standing pattern.

In 2016, Loblaw Companies applied a 1.45 per cent deduction to all its incoming shipments, saying in a letter to suppliers, “We think the burden of inflation needs to shift.”

Loblaw did not respond to a request for comment, and Sobeys declined to comment. The Retail Council of Canada said it does not comment on individual commercial activities.

Charlebois said since 2012, the food manufacturing sector in Canada has lost thousands of jobs as companies decide to manufacture in the United States, where costs are lower. He said this makes prices in Canada more volatile, as trading with the U.S. means having to contend with the U.S. dollar.

Grocers want to keep prices low for consumers, which is why they push extra costs down the supply chain, said Charlebois, affecting processors and farmers.

“Food processing has been undermined for years,” he said.

Michael Graydon, CEO of Food & Consumer Products of Canada, said while this isn’t the first time a major Canadian grocer has implemented extra fees on its suppliers, it’s the first time they’ve done so for such a “specific ask.”

He said this latest move will eat up suppliers’ already slim margins, reducing the money they have to spend on innovation and promotional spending, and causing some to manufacture in the U.S.

Graydon and others have been asking the Canadian government to create a food retail code of conduct for years, similar to codes that exist in Australia, Europe and the United Kingdom.

He believes a code of conduct, and a bureau to arbitrate matters like the one happening right now, could actually save grocery companies and suppliers money.

“If we continue to have this behaviour, and this lack of a balanced playing field, then it’s not going to get any better.”

Kathleen Sullivan, CEO of Food and Beverage Canada, said Canada’s highly concentrated food retail market, of which five companies make up 80 per cent, makes for a “massive imbalance of negotiating power.”

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United Grocers Inc., which buys on behalf of Metro Inc., Save-on-Foods and other retailers, has already sent out a letter asking for the same discount from its suppliers after the Walmart news, she said, adding this “copycat” approach is what usually happens when one grocer makes such a demand — others follow suit. But the unprecedented extra fee for e-commerce is “unsustainable,” she said.

United Grocers Inc. did not respond to a request for comment.

When asked about the United Grocers letter in a conference call on Wednesday, Metro CEO Eric La Fleche said it was “standard fare,” and that “when we hear about our competitors asking or getting … different conditions, we try to make sure we’re treated equitably.”

That morning, Metro reported its third-quarter same-store sales rose by 15.6 per cent at food stores.

Sullivan said she believes COVID-19 has shown how critical and fragile Canada’s food system is, and just how vulnerable Canada is to other countries’ decisions in a time of crisis. She’s concerned that more and more companies are moving to manufacture in the United States, removing investment from Canada and resulting in less control of the country’s food system.

Aug. 04, 2020

“It’s in the interest of Canadians to have a Canadian food system,” she said. “We’re more vulnerable than we’ve realized.”

Gary Sands, senior vice-president of the Canadian Federation of Independent Grocers, said when the Canadian grocery giants make moves to get discounts from their suppliers, independent and small grocers often suffer, since they don’t have the power to make the same demands.

He said it also affects small and medium producers and farmers, which can’t meet the cost-cutting demands.

What does that mean for consumers? “Something’s gotta give,” said Sands.

Independent grocers, which are often the only grocery stores in many rural areas, may be forced to reduce staff, increase prices or close altogether, he said.

Sands, too, has been advocating for a code of conduct for years. He hopes that the timing of Walmart’s new fees — in the middle of a global pandemic — could make the government take notice this time.

In an emailed statement, Marie-Claude Bibeau, Canadian minister of agriculture and agri-food, said it’s “disappointing” to see Walmart impose these fees. She said while the terms of sale are “generally the exclusive domain between suppliers and buyers,” the scale of the new fees combined with the impacts of the ongoing pandemic “should be fully considered in the pending industry discussions.”

“The ongoing financial health of food processors and growers is critical to ensuring a robust food supply for Canadians,” Bibeau said. “Our growers and processors will also be key to helping restart the Canadian economy in the context of the pandemic.”
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