Empire eyes year-end for a grocery code of conduct, but others are skeptical

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Canada’s second-biggest grocery chain Empire Co. Ltd. is pressing ahead to establish a blueprint to end industry bullying before a government deadline expires at the end of the year, but others are warning that progress could be slower than expected.

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On Thursday, Empire chief executive Michael Medline — who has teamed up with food producers to push for changes in how big grocers treat their suppliers — told shareholders at an annual general meeting that the company has “moved the needle” with its campaign for new rules and government oversight in the industry.

Medline has warned that relationships between supermarkets and food producers are the most frayed he’s seen in his decades in retail. A convention of federal, provincial and agriculture ministers — known in the industry as the FPT — have given the grocery business until the end of the year to come up with a proposal that will solve years of infighting over the fees and fines the big grocers charge suppliers.

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Empire, which includes the Sobeys, Safeway and FreshCo stores, on Thursday said it was confident that the industry — represented by a handful of trade associations, alliances and lobby groups — could come up with a “meaningful proposal” by the deadline.

“We will not let this issue rest without an industry-led solution that is mandatory and includes government oversight,” Empire spokesperson Jacquelin Weatherbee said in an email. “Whatever the outcome of the federal election, we will work hard to ensure the government does not let this issue slide.”

We will not let this issue rest without an industry-led solution that is mandatory and includes government oversight

Jacquelin Weatherbee, Empire spokesperson

The comments on the code of conduct came as Empire booked first-quarter net earnings of $188.5 million on sales of $7.6 billion, coming close to matching its COVID-19-driven profit from a year ago which also included a “significant” real estate transaction.

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Others warned that December is too soon to get a divided industry to draft something as complex as a code of conduct proposal.

“It’s not going to happen,” said Gary Sands, senior vice-president of the Canadian Federation of Independent Grocers. “There’s too much work ahead.”

A code of conduct, already used to check the power of big grocers in the United Kingdom and Australia, has been debated in Canada for years. That debate became supercharged during the pandemic, when a series of controversies around fees and fines attracted government attention, and many of the top grocers then dropped their long-held opposition to a code.

In July, the Canadian agriculture ministers gave the industry a choice: come up with a solution, or the government will take a heavier hand in implementing a solution of its own.

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“By the end of the year, we want to have the solution ready to be implemented,” Quebec Agriculture Minister André Lamontagne, who co-chaired a recent FPT inquiry into fees in the grocery business, said in July. “We suggest they make it, otherwise we’ll have to be more involved in making sure something like that will happen.”

The FPT has recently hired a third-party facilitator to help the trade associations and alliances representing grocers, food processors and manufacturers figure out how to come to an agreement on a code of conduct.

“I think (legislators) want to see progress by the end of the year,” said the facilitator, Marc Valois of Intersol Group Ltd. “This thing has been festering for many, many years.”

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Valois will hold a meeting with retailers and food producers next week to brief them on how the upcoming process will work and ask for feedback.

The Retail Council of Canada, the trade association that represents the biggest grocers, said in an email that it is committed to “set a clear plan of action so that the FPT’s year-end deadline can be achieved.”

A trade association representing suppliers, however, said the industry can only come up with a code by December if it’s based on one that’s already been drafted. Food, Health and Consumer Products of Canada (FHCP) partnered with Empire to draft a code of conduct proposal earlier this year.

“I personally think there is a very good code in front of us,” FHCP chief executive Michael Graydon said. “If the group was willing to use that as the foundation of the conversation, then I think we can easily hit December.”

But Sands said adopting the FHCP-Empire plan would be the “antithesis” of a collaborative approach.

“We start clean,” he said.

Financial Post

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