What is the grocery code of conduct?
New rules could increase competition, but might not lower prices
Canada's grocery code of conduct cleared a major hurdle this week with news that all major grocery retailers will sign on.
The code has been years in the making, coming after a period of tense relations between retailers and suppliers.
A major point of contention has been fees that retailers have charged to keep suppliers' products in stock and to promote them.
"Retailers are relatively concentrated in the Canadian market, and so they have market power," said Mike Von Massow, a food economist at the University of Guelph.
"They can say to suppliers, 'We control 15, 20, 30 per cent of the Canadian market — if you want access to those consumers, you have to give us cheaper prices, you have to pay us to be on the shelves, you have to pay other fees as we establish online grocery shopping, you have to accept 90-day payment,' or whatever, so the retailers have exercised that power."
How did the code come about?
A 2021 federal report found those fees had grown "in their form and scale," leading to tension in supply chain relationships and dampening investment interest from some food processors.
The dynamic had also made it hard for small producers to access the marketplace, the report said, and for smaller, independent retailers to compete.
The report noted that Australia and the U.K. had responded to similar concerns by establishing grocery codes of conduct. A committee made up of industry groups was set up to explore a similar code for the Canadian market.
How would the code help?
The code of conduct includes provisions for fair and ethical dealing, commercial agreements and a smattering of miscellaneous topics such as how to handle the process of delisting a product.
One section lays out detailed rules about fees and under what circumstances retailers can charge them, and the code also sets out a process for resolving disputes if parties can't come to an agreement themselves.
Setting guidelines for how retailers and suppliers interact should help protect the latter, Von Massow says, as well as small grocers who don't have the same bargaining power.
"It's going to be a more level playing field," he said, but, "my guess is it's not going to be a perfectly level playing field." because larger players will likely always retain an advantage because they order in such large volumes.
Michael Graydon, CEO of Food & Consumer Products of Canada, says the code will mean a new era of friendlier relations between grocers and suppliers.
The U.K.'s code has been "incredibly successful" and is built on the same principle's as Canada's, he says.
"I'm hopeful the same results will transpire."
What will a code mean for consumers?
While the code was not written with the goal of lowering prices at the grocery store, Gary Sands, senior vice president of the Canadian Federation of Independent Grocers, predicts it will ultimately have a "positive impact" on prices.
"In other countries that have brought in grocery codes of conduct, prices have come down," he said.
Still, comparing food inflation data from these countries doesn't paint a conclusive picture and it's difficult to peg changes to a single factor.
Von Massow, the food economist, thinks the code could ultimately drive prices up, if it means putting limits on the concessions that grocers can demand from their suppliers.
"It's hard to see as an economist how taking money away from the big grocers will then also lead to lower prices," he said.
What would a code mean for competition?
Both Von Massow and Sands agree the code should help smaller grocers compete with their larger counterparts.
Right now, Sands says independent grocers often find themselves at a disadvantage because they don't have the same bargaining power as larger chains.
There have been times, he says, when a certain product is in low supply or high demand, and large grocers have demanded they get extra supply at the expense of their smaller competitors. These stores are sometimes the only grocers available in a rural or remote community, he said.
"As a result, some of those communities have been without essential products," he said. "With the code, that's one of the principles that we've addressed — that scenario, those types of situations won't occur again."
Christine Tacon, the former adjudicator of the U.K.'s code, says she believes it successfully promoted competition in her country.
"When I started, I regulated 10 [retailers] — there are now 14," said Tacon. "I'm sure it helped increase competition."
How will the code be enforced?
Participation in the code is voluntary, at least for now.
That's in part because grocers in Canada have to deal with a complex mix of federal, provincial and territorial laws. There was concern that legislating the code could result in each province having a different version — and in some provinces having no code at all.
"This is really a leap of faith in terms of the enforcement," said Sands. "We're trusting that everyone who publicly signs on to the code will adhere to the principles."
Sands says there will be an adjudicator who can step in if parties can't reach an agreement, and that the code will be reviewed after about a year's time to ensure it's working.
Tacon, the former U.K. adjudicator, says she understands why Canada wants to start with a voluntary code but adds the U.K.'s only started to take effect once it was made mandatory.
What's next?
The grocery code of conduct is expected to take effect on June 1, 2025.
There's plenty of work to do between then and now, says Graydon, with Food & Consumer Products of Canada.
Over the next year he says they must hire an adjudicator, brief thousands of manufacturers, suppliers and independent retailers on the code, and get all those parties to sign up.
"This is a massive recruiting exercise," he said.
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With files from The Canadian Press