Food industry code of conduct could tamp down rising grocery bills, Empire CEO says

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Michael Medline, the head of one of Canada’s largest supermarket chains, is getting impatient.

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Inflation is expected to jack up household grocery bills in the new year, supply chains are chaotic and the industry is still negotiating a code of conduct, a groundbreaking achievement he believes could be helping retailers and suppliers tamp down the rising cost of food.

“It’s taking too long,” the chief executive of Sobeys’ parent Empire Co. Ltd. said in an interview Thursday after his company reported better-than-expected quarterly earnings. “Let’s get at it. There’s a code on the table. Let’s go.”

Ten trade associations have for months been engaged in formal talks to develop an industry code of conduct that would rewrite the rules for how food is brought to market in Canada. The code is expected to address growing concerns about how the top food retailers impose fees and fines on suppliers, which many argue they have no choice but to pay in a sector where five chains control roughly 80 per cent of sales.

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The task of reigning in those extra costs on suppliers has become all the more urgent, Medline said, as new research predicted food inflation will hit five to seven per cent next year, according to the Food Price Report released Thursday by Dalhousie University, University of Guelph, University of Saskatchewan and University of British Columbia.

“We’re seeing instances where if we had a code, some of this inflation … might not be occurring,” he said. “If we had a way that we could work better together and encourage businesses to talk to each other and not just lob threats, then we could tamp down a little bit of this inflation.”

I don’t like stalling, and I think we’ve got a good code

Michael Medline

Empire, Canada’s second-largest grocery chain, beat expectations in its second quarter by recording $175 million in profits, according to a Thursday earnings update.

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Food sales at the supermarket chain — which includes Sobeys, Safeway and FreshCo — hit $7.3 billion in the quarter ended Oct. 30, managing to top last year’s results by almost five per cent.

Scotiabank analyst Patricia Baker said Empire’s net earnings of 66 cents per share represented “yet another earnings beat” for the grocer, which “handily” outdid analyst expectations of 60 cents per share. Empire’s gross margin rate of 25.3 per cent was also better than anticipated, she said in a note to investors on Thursday morning.

Earlier this year, Medline and Food Health and Consumer Products of Canada (FHCP) — the main trade group for suppliers — formed an unlikely alliance to draft a proposal based on a similar code of conduct used in the United Kingdom.

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“I don’t like stalling, and I think we’ve got a good code,” Medline said.

But Gary Sands, senior vice-president of the Canadian Federation of Independent Grocers and part of the 10-member design committee currently working on a code, said the Empire-FHCP proposal didn’t pay enough attention to small and mid-sized players.

“We’re making good progress on our discussions around a code,” he said.

Several controversies around fees and fines thrust the issue into public view during the pandemic, catching the attention of legislators. Agriculture ministers from the federal, provincial and territorial levels — an influential body known in the industry as the FPT — studied the issue and came back with an ultimatum for the industry: find a solution or we’ll find one for you.

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“By the end of the year, we want to have the solution ready to be implemented,” Quebec Agriculture Minister André Lamontagne, who co-chaired the FPT’s investigation into the fees, told the Financial Post in July.

The FPT changed the timing slightly last month, asking the committee for an update in December and a “concrete proposal” by March.

“I’m a little concerned. I think that you need momentum and velocity in these kinds of things,” Medline said. “The provincial leaders are doing a good job. They really want a code and they’re exerting pressure to get it done in a timely fashion. And if they continue to do that, we’ll have a code that we can all be proud of. But we can’t let deadlines continue to slip. When deadlines slip, nothing gets done.”

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On Thursday, Lamontagne said the March deadline will allow for “a durable solution” to the problem.

“I understand that some people are impatient to see a code in place. I am one of them,” he said in a statement provided by his office. “We want something that will be in place for a long time.”

A spokesperson in federal Agriculture Minister Marie-Claude Bibeau’s office said there doesn’t appear to be a consensus in the industry yet about what a code should look like, making the design team’s work an important part of the process.

“She thinks there’s value in the work that’s being done now,” spokesperson Oliver Anderson said.

Michael Graydon, chief executive of FHCP, said there’s “energy around the table” to meet the March deadline.

“This has been percolating for 10 years. And to try to get a 10-year problem resolved in a few months is probably a bit extreme. Even to do it by March is going to be significant,” he said, adding that he believes it’s achievable. “If government had have said, ‘Let’s go with the FHCP-Sobeys code,’ we could have done it by December. But not everyone around the table believes that’s the right direction. So they have to have their voice.”

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