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Loblaws suppliers debilitated by the grocery giant’s questionable practices

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There are many parties to point fingers at amid the endless cost of living crisis in Ontario, from investors hoarding housing stock, to retail executives elevating prices, to authorities who’ve failed to take meaningful action to mitigate the effects of inflation.

Canadian supermarket chains have had a particularly dramatic fall out of public favour, as prices for everything from basic staples to decorative items have skyrocketed while stores report bonkers profits.

In an effort to try and chip away at their villainous reputation as of late, these companies have been shifting the burden of higher sticker prices onto suppliers, saying that costs on their end are surging, too.

But, at least some suppliers have a different story: one of how expensive and problematic it is for them to work with some of the few powerful players who dominate the market, and with whom they must continue to work for the sake of their business given the reach these companies have.

An insider with first-hand knowledge of the Loblaw supply chain spoke to blogTO this month, opening up about a fee hike that the grocer is imposing on suppliers this spring — just one of a handful of costs that have made dealings with the brand borderline financially untenable, especially for smaller firms with already limited profits.

“They promote that it’s cost-saving for suppliers because they handle the logistics and centralization of warehousing and distribution to the stores, but the fee structure is so high that it actually doesn’t make sense for some suppliers. They end up billing them back enormous fees,” the individual, who wished to remain anonymous, said.

It was an upcoming 4.3 per cent increase in offloading rates — set to go into effect for suppliers at the end of April — that pushed the source to want to speak out, as this change will almost surely translate to higher costs to customers.

Meanwhile, executives at both Loblaw and Metro have said prices at the cash register have and will continue to surge due to double-digit increases in what they’re being charged by suppliers, which Metro CEO Eric La Fleche called “too high and hard to justify” last month.

“But if we’re trying to reduce costs for consumers, another four per cent on suppliers is a big deal,” the supply chain insider told blogTO, adding that any proposed price raise on their side will take months to be approved and reflected in Loblaw’s system. Still, they will likely be submitting a request to increase prices as a result of this fee change in April.

“I know the industry’s been pushing on the suppliers, but it’s not really the suppliers, it is them,” they said; a statement that has dual meaning, since Loblaw Companies Inc. also actually owns some of its own suppliers.

“One thing that I was really shocked with is that Loblaw actually started going out and buying these companies a few years ago,” the source said, citing food wholesale business Canda 6 Fortune as one example.

“They want to blame the suppliers, but in some cases, Loblaw is the supplier… If Loblaw as a supplier wants to raise their price, that’s Loblaw’s decision at the end of the day.”

The individual also noted a few other levies from Loblaws that they feel are unreasonable: for example, a merchandising charge to remove expired units from store shelves, even if the stock was mis-merchandised, wasn’t rotated, or was over-ordered — nothing that could be considered the supplier’s fault.

Then there was a series of other, far more shocking charges that suppliers claim to have faced in 2023 for facelifts of various stores under the Loblaw banner, which is something they say they hhad no say in.

“They actually charged their suppliers, based on how much business each did with them, for their store renovations,” the source said, calling the concept “ridiculous.”

Internal documents emailed to blogTO do indeed show multiple deductions billed to one supplier as “RENO_STORE,” followed by specific store names and location numbers. In the few examples shared, these automatic charges ranged from just a few dollars to nearly $300.

And, with Loblaw just announcing on Tuesday that it is opening more than 40 new outposts nationwide, relocating or expanding 10 and renovating more than 700 others, suppliers expect more of these charges to come.

Insider documents forwarded to blogTO show amounts Loblaw allegedly debited to suppliers for store renovations.

In the wake of that news — which executives billed as a $2 billion investment into the Canadian economy that will create upwards of 7,500 jobs — members of the public have been throwing doubt on the brand’s priorities, wondering how it is able to announce an ambitious expansion for the alleged benefit of consumers, but unable to cut any of the product costs those consumers have been struggling with for months.

“Hundreds of renovations and 40 new store openings, plus the over four per cent increase in distribution centre fees — this will crush smaller vendors,” our source said. “It’s interesting that Loblaw said this would cost $2 billion, but didn’t say how much of that is coming out of their pocket.”

A Loblaw spokesperson asserted to blogTO that allegations that suppliers have had to pay for store renovations is simply “not accurate.”

A representative from Loblaw Companies Ltd. confirmed to blogTO that some of its suppliers were recently notified of “changes related to the cost for them to use our transport, network and distribution services,” which it calls “a small change” attributable to inflation.

“It is important to note that almost 900 small suppliers are exempt from some of these charges,” they added, saying that “the increase reflected is only a portion of the actual increased costs that we are experiencing. We are absorbing the balance in an effort to help keep costs down for suppliers and ultimately customers.”

One of these notices forwarded to blogTO was, though, to what one could consider a very small Canadian supplier with a small staff of less than 20.

After some grocery stores were accused of price-gouging for in-demand items during the pandemic, food inflation proceeded to mysteriously soar higher than headline inflation, which the public has been extra wary of with the memory the nation’s bread price-fixing scandal still fresh.

Shoppers have found themselves incensed by new, suddenly outrageous prices near-daily, as well as by shady moves and deals that have been taking place, such as the now-reversed exclusive prescription-benefit arrangement between Loblaw and Manulife (which may have to do with the latter’s head of group benefits being the former EVP of pharmacy at Shoppers Drug Mart).

There was also Loblaw’s move to axe the 50 per cent off discounts it offered on near-expired food at some stores, which the company also backpedalled on after uproar.

Speaking on a Grocery Code of Conduct that the federal government’s Agriculture and Agri-Food arm is trying to implement, Loblaws heir Galen Weston said further oversight of grocery operations as outlined would “remove a retailer’s ability to hold vendors accountable to their commitments,” and thus would translate to even higher food prices that are somehow out of Loblaw’s control.

But, leaders continue to push for revisions to the industry, which was validated by Canada’s Competition Bureau last year to be far too concentrated.

“We have seen a long-term trend… of Canada’s largest grocers increasing the amount they make on food sales. Canada needs solutions to help bring grocery prices in check,” the watchdog said in a special report on the subject.

Things that residents can be hopeful about in this case, though, is that An Act to Amend the Competition Act and the Competition Tribunal Act — introduced by NDP leader Jagmeet Singh in the fall — passed in the House of Commons earlier this month, while Canada’s Minister of Industry works to actively poach overseas grocers to enter the market.

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