Walmart Canada defends controversial new supplier fees as sales soar

Article content

The head of Walmart Inc.’s Canadian operations on Thursday defended the big-box chain’s controversial decision to charge its suppliers higher fees during the pandemic, arguing that COVID-19 has created a more online-savvy shopper who is more expensive to serve.

Walmart’s additional fees, introduced last year to help cover the cost of a $3.5-billion modernization plan in Canada, set off a prolonged conflict between manufacturers and supermarket chains, a few of which sought to charge similar supplier fees.

Legislators have taken notice, and a formal committee of federal and provincial agriculture ministers late last year opted to investigate the issue. Manufacturing advocates want government to implement a code of conduct, similar to one enforced in the United Kingdom. Some major Canadian supermarket chains have expressed some openness to the idea, including Metro Inc. and Empire Co. Ltd., Sobeys’ parent company.

Article content

But Walmart Canada president Horacio Barbeito said he wouldn’t support a code because allowing the market to operate freely “fosters competition” and increases productivity.

“I’m not for it,” he said. “There’s healthy competition in the market. I think the rules are clear. This is common practice in commerce. You have suppliers and retailers in general just thinking about the customer and the ways to serve them.”

But Michael Graydon, chief executive at Food, Health and Consumer Products of Canada (FHCP), who has been one of the advocates leading the push for more regulation, said Walmart’s new fees don’t represent “a competitive marketplace.”

Instead, it’s indicative “of a consolidated marketplace where you have the power to be able to do that,” he said. “The manufacturing community has no choice. If they wish to sell to that particular retailer, they’ve got to follow the line.”

Since announcing the fees last July, Walmart has been relatively tight-lipped as tensions mounted in the sector. But Barbeito on Thursday laid out exactly why he believes the new fees — up to 6.25 per cent of the cost of goods sold to Walmart — are fair.

Article content

He said retailers now deal with a “customer that’s channel agnostic,” after an unprecedented shift to online ordering during the pandemic. That kind of customer is more expensive to deal with.

“The fees that we have introduced are for a very, very small portion of our total estimate,” he said of Walmart’s five-year, $3.5-billion investment in its Canadian stores, distribution and e-commerce operations.

Those investments, Barbeito said, are starting to show benefits for suppliers. In a quarterly update released on Thursday, Walmart reported a 229 per cent spike in net e-commerce sales in Canada, with net sales growth of 8.6 per cent.

Worldwide, Walmart reported record revenue of US$152.1 billion in its fourth quarter, a 7.4 per cent increase over the previous year.

In an annual report on the Canadian operations, also released on Thursday, the company said it fulfilled a record number of online grocery orders in 2020, with its fleet drivers logging more than 100,000 kilometres daily.

Despite the sales increase in Canada, the company reported a decline in its gross profit rate, since much of the gain occurred in the lower-margin grocery category.

The parent company only provides limited figures on the Canadian operations, and did not include exact dollar figures.

“Our suppliers know what kind of a customer we are. We trust them. They trust us,” Barbeito said. “In fact, next week, we have our annual supplier forum and it is two times the usual attendance that we expect. They’re very excited about the growth that they’re experiencing. They want to hear more.”

Article content

But FHCP and lobby groups representing independent retailers have argued for months that the rising fees and fines on shipments in the pandemic aren’t fair, squeeze already-thin margins and threaten to push exasperated food producers out of Canada.

Advocates have been particularly enraged by short shipment fines during the pandemic, which has caused both unexpected spikes in demand and production slowdowns due to safety protocols and employee illness.

Barbeito said Walmart Canada has worked with suppliers individually to address issues with production capacity or imports of raw materials.

“We don’t have suppliers refusing to ship. On the contrary, I think there’s a great opportunity to send more,” he said. “We’re working with each supplier.”