Unpacking Canada's Grocery Code of Conduct

Welcome to Market Basket Musings, Salud Brand Management’s newsletter diving into unique topics in the Consumer-Packaged Goods (CPG) industry. This month we will be talking about the Canada Code. Canada's Grocery Code of Conduct, is a colossal undertaking by industry stakeholders attempting to create a fair and transparent environment for all parties involved in the grocery industry, including retailers, wholesalers, and suppliers. Here is what it aims to achieve:

1. Foster a thriving and competitive grocery industry while considering the needs of all stakeholders, including small and medium sized businesses.
2. Promote trust and collaboration among industry players.
3. Ensure all parties can make informed decisions based on clear agreements.
4. Provide an effective dispute resolution mechanism

With some key provisions:

1. Fair and Ethical Dealings: Requires negotiations in good faith and prohibits unilateral alterations to contracts.
2. Commercial Agreements: Encourages written agreements to ensure clarity and transparency.
3. Payments: Sets guidelines for payment timing, charges for programs, and dispute resolution related to payments.
4. Other Items: Covers changes to supply chain procedures, third-party goods or services, forecasting and ordering, cost changes, de-listing or discontinuing products, protection of confidential information, and exceptional circumstances like force majeure.
5. Duty to Participate: Requires parties to designate representatives for code-related matters and ensure that staff are aware of the code and its provisions.

Overall, the code aims to create a fair, collaborative, and transparent environment in the grocery industry to the benefit of all participating stakeholders.

However, enrollment in the code is currently voluntary and two of the "Big 5" retailers have refused to accept the code in its current form, citing increased costs to Canadians, however, evidence supporting this claim is sparse. This has caused the federal government to threaten a mandatory code of conduct, a move that is supported by industry experts like Sylvain Charlebois.

The grocery industry has faced increasing scrutiny from the government over the past few years, a trend that has only intensified in recent months. Shoppers are becoming increasingly distrustful of the substantial power and influence wielded by major players within Canada's food system. While grocery executives have faced accusations of profiteering during this period of inflation, it's worth noting that such claims may be somewhat unjust. However, the silver lining in this heightened scrutiny is that it has brought to light the inner workings of an industry that has long operated with oligopolistic power.

While the code isn't explicitly aimed at stabilizing prices, it may uncover and address unfair fees charged to suppliers, potentially benefiting consumers indirectly. The current supplier-retailer relationship has a power imbalance, and often suppliers are charged unfair fees which ultimately get paid by the consumer as suppliers simply wrap them into their pricing.

Luckily, Canada can draw inspiration from similar countries that have implemented their own codes, either mandatory or voluntary. The United Kingdom, for example, mandated a grocery code to their top 14 grocers in 2010 after an earlier, voluntary iteration proved ineffective. It was prompted by many of the same concerns as in Canada: retailers transferring excessive risk and unexpected costs to suppliers. The code carries some serious weight which would allow for fines of up to 1% of revenue.

In Australia, the code is voluntary but legally binding once signed. It was created in response to complaints about grocers’ treatment of suppliers and has been signed on by the large industry players. Although the code is currently voluntary, there are works in place to make it mandatory.

Both countries tackled issues of retailer behavior toward suppliers, albeit in different ways. Canada faces the added challenge of addressing conduct from both suppliers and retailers, making the task even more complex.

Creating an effective code that garners acceptance by all stakeholders within a value chain is no small feat. Initiating change in an industry that has enjoyed favorable market conditions for decades is an even greater challenge. Our hats go off to the initial Steering Committee and the interim Board of Directors for climbing this mountainous task.

As the development of the code progresses, it remains to be seen how involved the government will be. One would think that industry giants have ample motivation to collaborate on the code’s development to appease the government, otherwise they risk government intervention, which may be less favourable than the code’s current form.? Only time will tell how this unfolds in the months ahead.

We are delighted you joined us for this edition of Market Basket Musings, where we explore a variety of topics in the CPG world. If you found this valuable, please consider sharing it with your CPG connections. Follow our LinkedIn page and subscribe to our newsletter for more industry news, information, and tips: Salud Brand Management LinkedIn. Finally, please share your thoughts on what you think lies ahead for the grocery industry and the Canada Code.