Walmart Canada's announcement last week to implement new fees on suppliers to help offset its $3.5 billion investment in the country could set a precedent for other retailers and have a significant impact on the long term viability of the food manufacturing sector in the country, Michael Graydon, CEO of Food and Consumer Products of Canada, told Grocery Business in an interview.
In a letter sent to more than 3,000 suppliers on July 24, Walmart said it is implementing a "Vendor Investment Program" that will begin September 14. The retailer says it plans to add a 1.25 per cent "infrastructure development fee" on the cost of goods it purchases and a 5 per cent "e-commerce development fee" for products that are sold through its web site.
Walmart said in the letter that the purpose of the fees is to "partially offset the necessary investments recently made and soon to be made by Walmart that will provide mutual benefits and growth opportunities."
“These asks become public very quickly and so retailers are going to say if you’re giving it to them, you have to give it to us, so it’s no longer a Walmart ask but a billion-dollar impact on the food manufacturing sector."
He says the cost to industry is not viable and if implemented, will drive food manufacturers out of the country.
“Governments have told us we need more capital investment in food manufacturing but on September 14, when Walmart’s ask goes into effect, our industry is going to get slammed with hundreds and hundreds of millions of dollars in incremental costs. This ask further demonstrates that the manufacturing community in Canada is being held for ransom. We have no options and it’s time the government steps in to implement a code of conduct similar to what is in the U.K.”
Graydon says FCPC has lobbied for a code of conduct for a long time but has received a “lukewarm” response from governments that have instead advised industry to find a solution and work with retail.
“But the minute that one retailer moves outside of this fair practice, others will follow, so we need a legislated solution. In the U.K. the code of conduct has been successful: it has improved profitability for retail and manufacturers, increased capital investment in manufacturing and consumer prices have gone down. And the reason this happened is because everyone looked for collective efficiencies.”
Graydon adds that the pandemic has demonstrated that Canada needs a self-sufficient sustainable manufacturing community.
“Approximately 60 per cent of what you see on grocery shelves comes from the U.S. If the border closed, Canadian food supply would not be enough to meet the demands of consumers.”
The Quebec government has already responded to Walmart’s ask, says Graydon, and voiced its opinion that Walmart should back away from this, “and we hope the Ontario government will do the same.”