National Post (National Edition)
If you look at it from our point of view, how many jobs are being lost in Canada? ... How much innovation is not developed for the Canadian market because of those fees?
SUPPLIERS REACT TO WALMART CANADA CHARGING EXTRA FEES,
TORONTO • Walmart Canada officially started charging its suppliers extra fees on Monday, veering closer to what some in the grocery industry say could be a breaking point in the shaky relationship between food producers and supermarkets.
Suppliers have been pushing back in meetings with Walmart since the retailer announced the new fees earlier this summer, and a major trade organization representing manufacturers said many of those negotiations are still underway, even though the fees came into effect on Monday.
“Will anybody go nuclear? Maybe. We’ll have to wait and see,” said Michael Graydon, chief executive at Food and Consumer Products of Canada (FCPC), referring to suppliers pulling their products from a retailer’s shelf.
“Those are decisions that will probably be made at the eleventh hour,” he said.
“Not sure whether it’s the right strategy or the wrong strategy. Time will tell. Traditionally, there’s not a lot of manufacturers that will take that angle.”
An executive at one multinational consumer goods manufacturer said the company considered the option of delisting products with Walmart, but decided against it. The executive asked not be named for fear of negatively influencing negotiations with Walmart.
“The only recourse you have is to pull your products from the shelves. And that's Armageddon. That's the worst it could possibly be,” the source said. “I've discussed it with my team, but we're not there yet, so I don't want to go down that road.”
As of Monday, Walmart is charging a fee of 1.25 per cent on the cost of all goods sold to Walmart, plus an extra five per cent on goods sold through e-commerce. The fees will help pay for Walmart's five-year, $3.5-billion plan to revamp its Canadian operations for a new era in retail, with investments in grocery delivery, distribution centres and store renovations.
Walmart has said the improvements will lead to sales growth for suppliers, making the fees a reasonable trade-off.
“We launched the initiative because the Canadian retail industry is evolving and the way we work with suppliers needs to change, too,” Walmart Canada spokesperson Adam Grachnik said in an email on Monday. Walmart did not respond to questions about its current negotiations with suppliers.
According to the manufacturing executive, Walmart Canada has refused to remove or reduce the fees. They said recent negotiations have revolved around getting more value in return, through increased order volume or extra promotions. But the fees will also require suppliers to look for savings in their own organizations to offset the added costs.
“Do I cut media? Do I reduce head count? Do I move my manufacturing from here to the U.S.? All of those things go on the table,” the source said. “If you look at it from our point of view, how many jobs are being lost in Canada? How much marketing money is not spent in Canada? How much innovation is not developed for the Canadian market because of those fees?”
FCPC said the majority of its members are still negotiating with Walmart in an effort to secure extra perks in exchange for the added fees, such as more sales, or even an agreement that the retailer won't impose any further fees for a certain period of time.
“Certainly some are satisfied and have concluded the situation, and some are just a long way off,” Graydon said.
Food producers in Canada have for years complained about the rising cost of doing business with the major grocers, including fees to list products on shelves as well as significant fines for late deliveries and light shipments.
But FCPC has suggested the new fight with Walmart could be different, since the fees have come in the middle of a pandemic while legislators in Ottawa are more sensitive about the stability of the country's food supply chain.
FCPC, along with seven other trade associations representing farmers, bakers, dairy processors and independent retailers, have been pressuring the federal government to rein in the big grocers and their fees with a code of conduct.
A code, similar to models used in the United Kingdom and Australia, would essentially guide relationships between grocers and suppliers, with rules on how fees and fines can be applied.
But earlier this month, the federal government made clear it will not move forward on a code of conduct, despite issuing several statements in support of food producers. Industry Minister Navdeep Bains' office told the Financial Post the federal government doesn't have jurisdiction over the retail industry.
“It is disappointing to see grocers impose these costly fees,” John Power, the minister's spokesperson, said in an email. “However, we recognize that terms of sale are generally the exclusive domain between suppliers and buyers, and that these fall under areas of provincial jurisdiction.”
Graydon, who has led the campaign for government intervention, on Monday said he has given up hope of a federally regulated code.
“The reality is, the federal government does not have the constitutional ability to do it,” he said. “That doesn't exonerate the federal government from taking some role in this process.”
Instead of leaving it to the provinces and territories to create a complicated web of 13 different codes of conduct, Graydon suggested that one option for the Liberal government could be to produce a template so that there's consistency across the board.
“This can't continue like this,” he said. “There is a cause and effect here. And we're getting close to the breaking point.”