Food suppliers feeling squeezed by the retail giants
Manufacturers believe Walmart’s plan to charge them extra is ‘turning point’
Walmart’s plan to charge its suppliers extra fees appears to have reinvigorated a long-simmering battle between supermarkets and manufacturers in Canada over how much a brand should have to pay to put its product on shelves.
The new Walmart fees — up to 6.25 per cent on the cost of goods sold online to help the retailer pay for a multi-billion-dollar modernization plan — are the latest in a series of fee increases across the grocery sector in recent years. But a major trade association is warning that this time marks a “turning point,” since manufacturers can’t absorb any more charges.
Food and Consumer Products of Canada (FCPC) said this week that it expects more grocers to mimic the Walmart charges. But any more increases, FCPC said, would be too much especially for the small manufacturers in Canada, who have already been squeezed by years of increasing retailer fees as well as extra costs of safety equipment and social distancing on production lines in the pandemic.
“They’re just using the manufacturers as a bank,” FCPC chief executive Michael Graydon said. “It’s a totally one-sided relationship.”
But the Retail Council of Canada (RCC), which represents thousands of retailers across the country, said supermarkets are themselves struggling with slim margins and have been facing intense pressure to upgrade their e-commerce and distribution networks in order to maintain market share and keep up with demand for online grocery ordering that has spiked during the pandemic.
RCC CEO Diane Brisebois said it’s “not unprecedented” for grocers to ask their suppliers to chip in on the upgrades, on which the largest players are spending billions of dollars, since they also stand to benefit from increases in sales.
“If the company is not growing, the manufacturers — regardless of size — are not growing,” Brisebois said. “It is obvious that all manufacturers, regardless of size, benefit when strong companies in the marketplace invest, and invest heavily, as certainly the grocers have been doing in the last couple of years.”
Brisebois noted that Statistics Canada data has shown growth in the food manufacturing sector. StatCan data does show steady rises in yearly revenue from 2015 to 2018, the last year the annual data is available. “It is a sector that has done very well,” she said.
Some politicians have taken note of the situation, particularly in Quebec, where the leader of the opposition at the National Assembly has been calling on Walmart not to abuse its “quasi-monopoly” and warning that the fees could bankrupt companies.
“Right now, our farmers are hit hard by the pandemic, droughts and the shortage of workers,” Quebec Liberal Party leader Dominique Anglade said in a tweet. “Walmart is adding to it by charging them unacceptable fees.”
The FCPC said it has been in contact with federal and provincial governments, asking for intervention on the Walmart fees while also continuing its years-long advocacy for a federal code of conduct for grocers and their suppliers — similar to a model used in the U.K. — which FCPC says could provide rules on fees.
In Ontario, Premier Doug Ford’s office called the Walmart changes “disappointing ” but declined to intervene, suggesting suppliers and retailers work together. Federal Agriculture Minister Marie-Claude Bibeau’s office noted in a statement on Friday that the terms of sale are “the exclusive domain” of supermarkets and their suppliers.
“However, given the scale of the costs raised here when compared to the current market-wide conditions and the impacts associated with the ongoing pandemic for both suppliers and retailers, such circumstances should be fully considered in the pending industry discussions,” Oliver Anderson, spokesperson for Minister Bibeau, said in an email. “The ongoing financial health of food processors and growers is critical to ensuring a robust food supply for Canadians.”
This week’s tensions are the latest in a long saga, where retailers raise the ire of suppliers by raising their fees.
Sobeys and Metro declined to comment. Loblaw did not respond to a request for comment.
Walmart says the fees are reasonable, since the investment will lead to sales growth for suppliers. The retailer stressed that the fees will only cover “a very small portion” of the $3.5-billion infrastructure upgrade.
Financial Post
They’re just using the manufacturers as a bank.
It’s a totally one-sided relationship.