Some suppliers ‘furious’ as Walmart plans new fees
TORONTO Walmart Canada will start charging a set of new fees to its suppliers as a way to recover some of the costs associated with its $3.5-billion modernization plan — a move that has some manufacturers “absolutely furious,” according to an industry rep.
In a letter to its more than 3,000 suppliers on Friday, Walmart characterized the new fees — up to 6.25 per cent of the cost of goods — as a reasonable trade-off, since the multi-billion-dollar upgrades to stores and e-commerce will lead to sales growth for suppliers.
But a major industry association that represents manufacturers in Canada said the fees are liable to burst supplier margins and threaten the survival of Canadian manufacturing, which has been hit by the added costs of safety protocols during the pandemic.
“It’s diabolical timing. It’s just diabolical,” said Michael Graydon, chief executive at Food and Consumer Products of Canada, adding that he fielded calls throughout the day from his members that supply Walmart. “They’re just absolutely furious.”
In Friday’s letter, Walmart told suppliers it will charge 1.25 per cent of the price of products sold to Walmart as an “infrastructure development fee.”
The chain is also charging suppliers another five per cent on the cost of goods sold through Walmart’s e-commerce business.
“These changes are about sharing in the investments we are making to ensure our customers have the low prices and shopping convenience they expect and deserve from us,” reads a copy of the letter, which Walmart provided to the Financial Post.
Graydon, however, said the new fee structure was “tone-deaf to the realities of the industry,” since food and consumer product manufacturers typically operate on fourper-cent margins.
“When you look at five per cent on e-comm sales — that’s your margin. So you’re going to give it away,” he said.
“It’s just getting to be ridiculous. And quite honestly, the industry cannot sustain and continue to operate effectively under these continued demands.”
Graydon called for provincial and federal legislators to intervene in what he described as a “consolidated” retail sector, warning that other big-box retailers will likely follow with similar fees.
“We’re just going to need government’s help to get it under control or else there will not be a manufacturing plant left in this country five years from now.”
Earlier this week, Walmart announced a major cash injection aimed at staying current with shopping habits, which have shifted dramatically toward online ordering during the pandemic.
“Our customers’ shopping habits are evolving, our industry is evolving and so must the way we partner with our suppliers in addressing the needs of our customers,” reads Friday’s letter, signed by Walmart Canada chief executive Horacio Barbeito and chief merchandising officer Kieran Shanahan.
The $3.5-billion investment, to be spent over the next five years, will go toward expanding Walmart Canada’s online ordering capabilities, particularly in the grocery delivery business, building two new distribution centres and upgrading 150 of its 400 stores with new technology, including equipment for clerks to process payments anywhere in the store.
“We’re making these big investments. They certainly benefit our supplier partners,” Shanahan said in an interview.
“We want to make sure we share the cost of that ... We certainly feel that’s very fair and reasonable to do that.”
Walmart said the new fees — to be charged on top of any existing fees — will “partially offset the necessary investments” but wouldn’t clarify how much it expects to recoup by charging the fees.
The new fees will start on Sept. 14. While the infrastructure investment will span five years, Walmart confirmed in an email that the fees for suppliers will be permanent.