On January 8, 2018, grocery giant Loblaw offered a $25 gift card to any Canadian who had purchased bread from one of its stores in recent years. As many as six million customers across the country would receive one, according to a company estimate—a move that was expected to cost between $75 million and $150 million. This was seen as a PR scramble after the company admitted involvement in a bread price fixing scheme amid a Competition Bureau criminal probe into whether several large retailers and suppliers were coordinating to increase the price of bread. According to court documents unsealed in a class-action lawsuit, the bureau alleged that, along with grocery retailers including Sobeys and Metro and bread suppliers, Loblaw had artificially inflated the price of bread by at least $1.50 for over a decade. Each price hike would take the same pattern, which became known as the “7/10 convention”: the supplier would raise the price by 7 cents, and then the stores would raise it by 10 cents for the consumer. On and on until the price of bread was vastly inflated.

Immediately following the news of the bread price fixing, public trust in Loblaw plummeted 10 percent, CBC News reported. Today, the grocery industry is facing consumer frustration and concern, due in large part to newly increased prices at grocery stores. This past year, many Canadians have scrambled to adjust their grocery budgets because of rising inflation. According to Statistics Canada, in July, the price of eggs rose nearly 16 percent year over year, of fresh fruit by nearly 12 percent, and that of bakery products by over 13 percent.

An August 2022 Angus Reid poll found that 78 percent of Canadians think grocery stores are taking advantage of current inflation to increase profits. A Dalhousie University study found that the three top grocers—Loblaw, Metro, and the Empire chain that owns Sobeys—all posted higher profits this year compared with their average performances over the past five years. While experts say there are a host of factors behind the price rises, including supply chain issues and increased transportation costs, the increasing profits of major grocers have sparked public outcry. Rising costs have even triggered a study by the Competition Bureau, which appears to be still investigating the bread price fixing scheme, to look into whether competition factors have impacted grocery bills as well.

Canadians don’t have a large array of choices when it comes to where they shop. According to some of the most recent data, available via the United States Department of Agriculture, five major retailers (Loblaw, Sobeys/Safeway, Walmart, Costco, and Metro) command nearly 80 percent of the grocery retail business in Canada. This market dominance gives them significant power over their relationships with both customers and suppliers. The shadow of the bread price fixing scandal, snarled supply chains amid the COVID-19 pandemic, and rising food prices have cast a pall over the grocery industry. Some have characterized it as an oligopoly, with a few big players dominating the market and creating conditions for possible price collusion.

Even before the inflation spike and inquiry, the federal government and industry members were looking into potential power imbalances. Retail experts say the key to increasing transparency for suppliers and consumers is a grocery code of conduct. It’s not a magic bullet by any means, but it could introduce more accountability in an industry that is essential for virtually all Canadians.

In late 2020, the federal, provincial, and territorial ministers of agriculture and food created a working group to explore a code of conduct for the food industry; by the next year, industry groups and food and retail insiders were working together on a draft. The origins of the proposed code have a lot to do with the dynamics between major chains and their suppliers as well as suppliers and independent grocers. While a retailer can represent more than 20 percent of a single supplier’s volume, no single supplier represents more than 3 percent of a retailer’s volume, creating an imbalance of power, says Michael Graydon, CEO of the industry group Food, Health, and Consumer Products of Canada (FHCP). One proposal, from the FHCP and Empire, suggested a common set of rules to promote fair dealing between retailers and suppliers through things like written supply arrangements and mechanisms for resolving disputes.

Retailers can currently demand that suppliers pay to get their products on store shelves—and pay even more to have those products promoted in store flyers or shelved at eye level. Larger retailers will often also push some of their costs onto suppliers: for instance, by giving themselves deductions on already-sent invoices and using that money to fund their own e-commerce platforms. These deductions or price changes aren’t fully explained to many suppliers. Instead, the retailers simply tell them that these new prices are in place, and suppliers have little recourse if they want to continue getting their products on store shelves. Playing by the retailers’ rules can become very expensive very quickly. Oftentimes, suppliers have to raise the prices of their products to make their profit, and the consumer ends up footing the bill.

Last spring, Loblaw stores stopped stocking Frito-Lay’s potato chips because the retailer wouldn’t agree to price changes that the Frito-Lay company instituted. Some suggested it was an effort on Loblaw’s part to ensure its wholesale costs remained the same, leaving a major supplier to deal with dramatically rising prices. Others say it was actually an attempt to keep prices consistent for customers. It’s not clear how much money Frito-Lay, a subsidiary of the multinational PepsiCo, risked by standing its ground for over a month, but its chips were pulled from Loblaw, which, with its close to 2,500 stores across the country, represents a huge market share.

Large retailers’ prices can indirectly affect independent stores too. Gary Sands, the senior vice president of the Canadian Federation of Independent Grocers (CFIG), recalls that during the first year of the COVID-19 pandemic, independent retailers were struggling to stock items like eggs or hand sanitizers because suppliers were prioritizing the major stores. It’s in the best interest of those suppliers to keep the big grocery retailers happy as they make up a huge portion of their business. And, if suppliers, big or small, come up short in supplying these retailers, they might incur a financial penalty.

Sands, who is also a member of the industry steering committee working on the code, says the goal is to promote “fairness and transparency” in the grocery market. And, importantly, the industry wants to do it without government oversight.

But, having already failed to meet two previous deadlines, the industry committee, which includes lobby groups such as the Fruit and Vegetable Growers of Canada and the Canadian Federation of Agriculture, along with retail players, has until the end of November to submit a working draft of the code to the federal, territorial, and provincial agricultural ministers. Ultimately, if the industry committee fails in its task to finalize a proposal by the November deadline, the agricultural ministers will be forced to step in. If they do, government members will have an active role in the process and can ultimately bring about the one thing that Sands and others don’t want: government in the grocery aisles.

The Canadian Federation of Independent Grocers has been pushing for a code of conduct since as far back as 2005. There are 6,900 independent grocers in Canada, and Sands says many of them serve rural, remote, and Indigenous communities. When they don’t have access to a fair supply of products, he’s seen concerns about food insecurity. Without a code of conduct, those retailers are at the mercy of suppliers, who are often at the mercy of large chain stores. A small rural grocer might not get its shipment of pasta one week if there’s a limited supply and the chain retailer in the next town upped its order. That was made clear this year, when the pandemic tightened supply chains, inflation skyrocketed, issues of fair supply were thrown into focus, and others, including government, says Sands, began “looking at the industry and realizing, hey, we have an issue here.”

Sands says a strong code of conduct would promote fairness and competition, something that would filter down to the customer in the form of better pricing. There would also be an enforcement arm of the code, so if a grocer or supplier is found breaking any of the provisions, they would be fined or otherwise punished for their mistakes and held to account by their own industry, though those specifics are still being worked out.

Currently, there are few forms of recourse for retailers and suppliers who break the rules. A supplier or independent retailer could file a complaint with the federal government under the Competition Act, but the process is far from simple or straightforward. “It’s time consuming and expensive to lodge a complaint,” Sands says, “and by no means should you be assured that there’s going to be a successful resolution. . . . It’s just not realistic.”

However, there is a sense of optimism about the code. Graydon says, “This will take time, so I anticipate there will be a transition period, but I am hopeful that . . . we have a smooth and effective implementation of the code.”

Canada is joining other countries that have or are considering codes of conduct. Graydon calls the existing code in the UK, first established in 2013, a “solid example of best practice.” The code outlines rules relating to supply agreements and payments as well as the costs of promoting products. The code in Australia has already undergone review in that country, which found that it’s improved relationships between retailers and suppliers in a short time. However, the review notes that there is more work to be done. As the code is voluntary, not all large retailers have signed on to participate. New Zealand is also currently working to institute one, though it’s not as far along in the process as Canada is.

The actual specifics of a Canadian code of conduct are tough to pin down. The committee is still discussing issues like enforcement provisions. But, even once there’s consensus, would a code really work? When it comes to something like preventing a price fix, “you are likely to reduce the risk of collusion, because there will be more oversight,” predicts Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University. “But I think it’s practically impossible to eliminate all risk.”

Simon Somogyi, the Arrell Chair in the Business of Food at the University of Guelph, says any industry code will only be as good as the enforcement mechanisms. In Australia, for example, grocers who sign on to the code have to provide written contracts or agreements that relate to supply. These contracts spell out provisions such as what volume the retailers need for certain products and when they will turn to a second-tier supplier to supplement low deliveries. These relationships can be codified by the contract or supply agreements—but they also give the Australian Competition and Consumer Commission (ACCC) guidelines to work with to enforce the code. Say, for instance, that a supplier delivers fresh oranges to a grocery store on Monday but the store rejects the delivery on Thursday. That would be a breach of the code, which requires a twenty-four-hour notice for rejecting a delivery. Now the commission has a clear directive to act.

“You’ve got to have a strong watchdog to make sure (the code) is enforced,” Somogyi says. “That enforcement body needs to have teeth and funding to do their job properly. And, by that, I mean: do they have jurisdiction? Do they have the ability to get people and investigate for fraud or breaches of the code?” A 2021 proposal for a code suggested retailers designate “Code Compliance Officers” to oversee compliance. The committee is tight lipped about the enforcement; it remains one of several provisions they are still discussing, though Graydon says there will be an adjudicator appointed with “authority to manage the code.” Without knowing who exactly would act as an enforcement body in Canada, or what the scope of their jurisdiction would be, it’s hard to see how effective a code might be.

Crucially, for Somogyi, the code must be something that all industry players are excited to sign on to, as they’ll ultimately be the ones holding each other accountable. Sobeys said in a statement that it expected a decision shortly. But, overall, the major retailers have offered few detailed comments about the code or what to expect.

A department spokesperson for the federal agriculture minister, Marie-Claude Bibeau, says the minister, along with her provincial counterparts, is monitoring the progress. As for what the role of government in such a code would be, the department demurred, saying that those specifics are still being discussed.

If the committee isn’t able to meet the deadline and government steps in, some experts worry it could lead to a patchwork approach of different codes across the provinces and territories. Some provinces, like Manitoba, have legislators calling for action, asking for a nonpartisan government committee to investigate rising food prices. Others may be more lax in their approaches, meaning that, if this code does end up in the hands of individual provinces and territories, consumers across the country may have different shopping experiences. For example, if one province enacts a code and another does not, a supplier would have two sets of regulations for the same product. That kind of variation is tricky for suppliers and retailers, and most hope to avoid too much government involvement.

But some experts are skeptical about the possibility of any other way forward. “At the end of the day, it’s hard to force the hand of very powerful companies like Walmart and Loblaw,” says Charlebois. “Loblaw can make or break companies. They can pick vendors they want to deal with and push away other vendors they don’t want to deal with. . . . That’s why we’re even having a conversation about a code of conduct.”

Emily Baron Cadloff
Emily Baron Cadloff (@EmilyBat) is a writer and reporter based in Halifax. Her work often focuses on the intersection between women and pop culture. When she’s not working, you can find her scrolling through TikTok.
Alessandra McGovern
Alessandra McGovern (alessmc.ca) is an illustrator and graphic designer based in Tiohtià:ke (Montreal).

New Year, New Stories

Hello and Happy 2023!
As we start this new year, we need you now more than ever. In these uncertain times, it is crucial that reliable media remains available to everyone. That is why we depend on your support to keep our journalism accessible and independent. From the economy to political polarization, the challenges our society is facing this year are too important for half truths. At The Walrus, the future of journalism is funded by engaged citizens like you. Together, we can preserve the integrity of Canadian media and ensure that our democracy thrives. Will you join us?
With thanks,
Jennifer Hollett
Executive Director
Jenn