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Retailers are also likely to try to negotiate the same cost reductions their competitors receive, Graydon said.
This week, for instance, United Grocers Inc. — a national procurement group that buys products for retailers such as Metro, Save-on-Foods and Circle K — told its suppliers in a letter that it would expect the same cost reductions that Walmart will receive. The letter came days after Walmart Canada asked its suppliers, on July 24, to pay an extra fee to help a five-year, $3.5-billion infrastructure upgrade. The fee will charge suppliers 1.25 per cent on the cost of goods they sell to Walmart, plus an additional five per cent on goods sold through e-commerce. Walmart says the fees are reasonable, since the investment will lead to sales growth for suppliers. The retailer stressed that the fees will only cover “a very small portion” of the $3.5 billion.
In an interview last week, Walmart Canada chief merchandizing officer Kieran Shanahan said he didn’t believe the new fee structure would widen the gap between big players and small ones in the sector.
“I disagree with that,” he said. “We think this is really fair and reasonable to share in the benefits in the growth of our investments (and) to share some of the costs of that.”
But the FCPC said retailer fees hit harder for small manufacturers, who operate on slimmer margins than multinational producers.
We think this is really fair and reasonable to share in the benefits in the growth of our investments (and) to share some of the costs of that
Kieran Shanahan, Walmart Canada chief merchandizing officer
“The small-to-medium manufacturer in this country is not making a profit. They are working at a loss,” Graydon said. “But they do have a profit plan as their volumes increase and as they get to a point where they improve efficiencies. So it might be a five-year plan.”
But when retailers add new fees, it upends the plan — making it less feasible for small producers to expand into big-box grocery stores.
“When you start on this plan, and then all of these incremental costs fall down on you, it becomes harder and harder for them to sustain,” Graydon said. “In many cases, they’re not doing business with the big guys to any great magnitude because they can’t afford to get in the door.”