Grocery code of misconduct may be coming for your favourite products
As we all know, the Canadian grocery business is a giant national price-gouging cabal of oligopolistic profiteers that rips off consumers and drives food inflation to levels that are causing great pain throughout the economy.
Politicians and leftist theorists such as the expanding economic control machine within the Competition Bureau in Ottawa claim the only way to tame this corporate monster is to impose new controls. In a report last year, the bureau called for a major increase in government intervention, including: a national grocery code of conduct, controls on how grocery chains sign property deals, allowing suppliers to form buying groups, mandating unit pricing and promoting the entry of foreign discount stores.
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Never mind that even the Competition Bureau, with all its bureaucratic capacity, could not come up with any real evidence that the grocery giants are driving prices and profits through greedflation. Canadian grocery profits’ margin increases have been “moderate but meaningful.” Grocers, it said, “are earning only modestly more in food gross margin.” The best the bureau could do is claim that while profit margin increases were moderate and modest “even small increases can matter for Canadians.”
What nonsense.
Despite lack of evidence of anti-competitive price gouging and profiteering, the bureau and the government are charging ahead with plans for major government interventions in food retailing, with the code of conduct being at the top of the agenda. It is ironic that while competition theorists complain about possible collusion between corporations, they are all in favour of a conduct code that would essentially set up a formal outline of rules and practices — a form of institutionalized collusion. And it should be mandatory, say cabinet ministers.
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Where that formal and legal collusion will lead is hard to predict, but there are clues emerging in Europe and in Canada that the code could become a starting point for a grocery industry oligopolistic takedown of manufacturers and suppliers — and a new anti-markets regime.
It’s too soon to reach that conclusion, but in Canada two CEOs have hinted at the need to take down the pricing tactics of suppliers. In a Commons committee appearance in December, Loblaw Chairman Galen Weston said, “It is important to stress that the suppliers, who make up 70 per cent to 80 per cent of the price of products, remain largely absent from this effort. Unfortunately, we have not yet seen a manufacturer come forward with a proposal to decrease costs.“ Weston added that a one-sided code of conduct that removes a retailer’s ability to hold vendors accountable “would risk higher prices … there is significant risk of higher prices and empty shelves.”
Empty shelves are more than a risk in Europe. Earlier this month, French supermarket giant Carrefour announced it would stop selling PepsiCo products (which include Lay’s chips, Quaker Oats, Lipton Iced Tea and its namesake branded soda). Signs on empty store shelves in France, Belgium, Spain and Italy carry a message: “We no longer sell this brand due to unacceptable price increases.”
Carrefour’s anti-supplier strategy is driven in part by European government interventions in the grocery markets over inflation, but the move creates a bizarre marketing situation. Carrefour is clearly trying to shift public and regulatory attention away from retailers, but there is a basic marketing irrationality in announcing, hey, we no longer carry products because of high prices. How many consumers looking to buy their favourite bags of Frito-Lays and bottles of Pepsi will view the empty shelves and ask: “Where the hell is my Pepsi?”
In a market-driven economy, consumers make their own choices. If Pepsi gets too expensive, they can buy Coke or some no-name brand. In a government-regulated regime, politics removes consumers, creates distortions and unhinges the market in favour of corporate and government power plays.
Perhaps significantly, the Carrefour/Pepsi clash has sparked a public corporate clash. Pepsi this week claimed it — not Carrefour — had initiated the move by pulling its products from Carrefour. Another French retailer, Leclerc, disagreed with Carrefour and said it will continue to carry PepsiCo products.
Whatever is going in Europe, the supermarket-vs-super-supplier battle may soon hit the North American grocery industry. Loblaw Chairman Weston suggested the final version of the Canadian grocery code of conduct needs to transfer more pricing power to the retailers.
Another Canadian grocery executive raised the supplier-off-the-shelves issue in December. Michael Medline, CEO of Empire Co. Ltd. — which owns Sobeys, Safeway and Farm Boy — warned that Empire was ready to adopt the Carrefour strategy in the face of “ridiculous” and “distressing” price increases from suppliers.
Medline did not name names, but he said:
“They just can’t be justified. Inflationary times are not an excuse to pass every single rising cost on to grocers, and more importantly to Canadians … We have instructed our national sourcing team to be even tougher on this latest round of cost increase requests. We will not take unfair cost increases and pass them on to Canadians … If that results in a few holes on our shelves, we believe that Canadians will more than understand.”
What started out as a political and economic power grab by politicians and the Competition Bureau now seems to be turning into a perverse demolition of market forces by removing the power and role of consumers and replacing them with a grocery code of institutionalized misconduct.
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