Financial Post
Cheese giant refuses to pay supermarkets’ fines.
TORONTO • One of Canada’s biggest cheesemakers is refusing to pay fines imposed by supermarkets for light shipments, anticipating rising consumer demand during the latest tide of coronavirus infections and lockdown orders.
The blanket refusal flouts convention in the grocery business, where supermarkets have historically charged suppliers penalties when their shipments come up short, or light. But some in the sector argue those fines are no longer fair given that food producers are facing volatile demand and a fresh wave of absenteeism in their factories as COVID-19 cases spike again.
Lactalis Canada Inc. — the multinational dairy processing giant behind the Beatrice, Lactantia, Astro yogurt, Cracker Barrel and Black Diamond brand names — told retailers in a letter last week that it is making cheese at maximum capacity in order to stay on top of climbing demand driven by both stay-athome orders and the holiday season.
“In the spirit of fair and co- operative practice, Lactalis Canada will not accept any penalties or fines over the holidays effective immediately until January 11, 2021,” reads a version of the Nov. 19 letter obtained by Financial Post.
Most grocery chains stopped charging fines during the first frantic months of the pandemic last spring, when new safety rules and wild swings in eating habits made it near- impossible for manufacturers to fill every order exactly. This fall, however, retailers started reimposing the fines.
But Food, Health and Consumer Products of Canada ( FHCP), a major trade association for the manufacturing sector, said production capacity has dropped to around 80 per cent, on average, due to social distancing and other safety precautions on the factory floor.
“There’s only so much we can make,” FHCP chief executive Michael Graydon said. “When the demand outstrips our capacity to make the products, it’s disingenuous to then turn around and fine us.”
One executive at a multinational food manufacturer estimated that their company had been charged hundreds of thousands of dollars in fines in Canada in November alone. The executive spoke on condition they not be named for fear of negatively influencing retailer relationships.
Loblaw Cos. Ltd., the country’s largest grocer, in September sent a letter to suppliers informing them that the chain would start charging fines again on Oct. 4 after months of leniency. At the time, Loblaw said it knew “a second wave is possible and that we may need to adjust to specific circumstances” with suppliers.
Loblaw on Tuesday declined to comment on the Lactalis letter, as did Walmart Canada and Empire Co. Ltd., Sobeys’ parent company. Metro Inc. said in a brief statement that it will “continue to exercise judgment in our procurement policies.”
Lactalis Canada said the letter was intended to help establish a more collaborative approach to the latest demand challenges.
“There is significant pressure on manufacturers to meet consumer demand at this time as a result of the second wave of COVID-19 and the regular festive season,” spokesperson Roopa Shah said in an email. “For Lactalis Canada specifically, as a dairy manufacturer, we typically deal with shorter shelf- life products and high delivery frequencies on larger volumes and, as such, are more heavily impacted by this demand and associated fees.”
Lactalis’ letter comes amid rising hostilities between suppliers and retailers in the grocery business, with the food manufacturing sector pushing back against fees charged by big supermarkets.
Fees and fines have long been a sore spot in the sector, but tensions flared this summer when Walmart and started charging suppliers new fees to help pay for its multibillion- dollar infrastructure investments. Loblaw followed with a similar new fee last month.
Fines for light shipments in the middle of a pandemic only escalated those tensions, said Graydon at FHCP.
“In a normal time, this would be aggravating,” he said. “In the middle of a worldwide pandemic, where the numbers are going through the frigging roof and we’re in lockdown, to continue this behaviour is just ... it’s ridiculous.”
Graydon said manufacturers can be forced to pick and choose which orders they fulfil when supply is strained, making decisions based on which stores charge big fines for light shipments. That, he said, often ends up harming smaller grocers that don’t have the power to charge fines.