A grocer code of conduct will lead to more competition, more choices, and stable food prices for consumers
Loblaw has finally endorsed the grocer code of conduct, opting to do the right thing after months of swirling rumours.
Its decision marks a significant milestone in the Canadian grocery sector, as all major grocers have now committed to the code. Metro, Sobeys, Costco, and Loblaw have all emphasized that the grocer code of conduct can only be effective if all participants adhere to these new guidelines.
And they are right. Participation by all grocers is crucial to addressing supply chain abuses that, while often invisible to consumers, have daily impacts on their lives. Unfortunately, Walmart Canada remains the lone holdout.
For Loblaw, the tipping point likely came when Galen Weston misled parliamentarians last fall by claiming that the grocery code of conduct would inflate food prices, impacting all consumers. Since an industry-led, voluntary code of conduct does not directly affect prices, Weston was forced to apologize to Ottawa on Christmas Eve, a time when most Canadians were preoccupied with holiday festivities.
However, the food industry was paying close attention and grew increasingly frustrated by the day.
Consumers have two main reasons to rejoice over Loblaw’s decision to join the code.
First, the grocery code of conduct promises to stabilize food prices by curbing the so-called supply chain bullying primarily led by Loblaw and Walmart. In the food industry, suppliers often must pay grocers various fees to do business, giving tremendous power to grocers over their suppliers. Listing fees can range from $50,000 to millions for a single product. Whenever these fees increased, suppliers had to adjust prices to offset the costs, creating volatility and higher food prices for consumers. Historically, food prices have been more volatile at retail during months when grocers unilaterally increased fees, with Loblaw and Walmart often leading the charge.
Second, the code will bring greater transparency to the entire supply chain. The secretariat established to support the code will release an annual report detailing disputes within the supply chain and their resolutions. For the first time, the public will be able to see which companies are abusing their power, affecting food prices. This transparency will make the entire industry more accountable to the public.
The code will level the playing field for both grocers and suppliers, which is particularly beneficial for independent grocers and small food manufacturers. Many small manufacturers dreaming of bringing their unique, innovative products to market have often seen their ambitions crushed by increasing listing and marketing fees. These unilateral decisions by grocers have killed many companies that cannot bear the financial burden and have suppressed competition across the food chain.
The code should help many small food manufacturers survive, offering opportunities for independents to sell unique products that larger chains may overlook. This will lead to more opportunities, more competition, more choices, and stable food prices for consumers.
Some Canadians may feel uncomfortable with the notion of implementing a code. However, the code is not about government intervention or controlling supply. Instead, it is about liberating the market and allowing more players to participate, which is exactly what we need. A code of conduct has proven effective in other countries with similarly structured food industries.
If we can convince Walmart to endorse the code, the Canadian food industry will be well on its way to becoming more competitive and equitable.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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