Supplier fears intensify
Group asking for equal treatment in wake of Walmart Canada’s controversial plan to charge more fees
A major network of Canadian grocers is asking suppliers for equal treatment just days after Walmart Canada introduced a controversial plan to charge suppliers more fees to help pay for an infrastructure upgrade.
United Grocers Inc., a national buying group that negotiates supply deals on behalf of Metro Inc., Save-on-foods, Longo’s, Alimentation Couche-tard Inc., and other retailers, told suppliers in a letter that it will “expect to receive any cost reduction you may decide to offer any competitors.”
The move has intensified concerns from Canadian suppliers, who warned last week that Walmart’s extra fees could burst their already-slim margins and threaten the stability of manufacturing in Canada if other retailers followed suit with similar requests.
Last week, Walmart said it will charge suppliers 1.25 per cent on the price of products it purchases from them, as well as an additional five per cent on goods sold through e-commerce. The new fees, which start Sept. 14, will help cover the cost of its five-year, $3.5-billion plan to upgrade its Canadian stores, distribution network and online ordering systems, Walmart told its suppliers on Friday.
UGI president Michael Forgione, who wrote this week’s letter to suppliers, said his members brought the Walmart fees to his attention. UGI, which combines the buying power of its members for benefits like volume discounts, said it represents 34 per cent of Canadian food industry across 6,500 stores. The company started in 1972 to give independents a chance to compete against the big grocery chains, according to its website.
“UGI members have been made aware of communication you have received from a competitor, requesting major cost reduction through the introduction of new fees,” Forgione wrote in his letter to suppliers. “UGI members will strongly expect from all suppliers to be treated fairly and competitively.”
Forgione said UGI won’t implement Walmart-style fees, but wasn’t precise about how his organization will get the same cost reductions from suppliers.
“Through our normal course of business, we’ll continue to work with suppliers to make sure our members are treated fairly,” he said, adding it was still early in the process.
Food and Consumer Products Canada (FCPC), an industry group that represents Canadian manufacturers, said the Walmart fees were unsustainable for its members, who typically operate on 4.4 per cent margins. FCPC chief executive Michael Graydon told the Financial Post last week that the new fees would slowly become the norm in the “consolidated” Canadian grocery business.
The UGI letter was “what we expected,” Graydon said. “This is how the industry works. When one asks, everybody wants.”
Graydon said FCPC has been in contact with federal and provincial governments, asking for an intervention to stop the increasing fees.
Politicians in Quebec criticized the Walmart decision, with provincial agriculture minister André Lamontagne calling it “disappointing” in a statement to the Journal de Quebec. Walmart’s fiercest critic in Quebec, however, appears to be opposition leader
Dominique Anglade, of the Quebec Liberal Party, who has railed against the fees as “unacceptable” on Twitter and in media interviews.
In Ontario, Premier Doug Ford’s office criticized the extra costs to suppliers, but declined FCPC’S request to intervene.
“This decision is disappointing, especially at a time when businesses are struggling to cope with the unprecedented pressures presented by COVID-19,” Ivana Yelich, the premier’s spokesperson, said in an email. “That said, the province does not regulate the supplier-retailer relationship, nor pricing and fees. We are encouraging retailers to work with suppliers and processors to ensure the continued affordability of food and consumer goods during these extraordinary times.”