Big and powerful | Supermarket chains are demanding food suppliers to cut prices
As Canada’s food retailing sector becomes more concentrated and economically powerful, some companies are beginning to throw their marketplace weight around with demands for lower-cost products from suppliers.
In recent weeks, Canada’s second-largest supermarket chain, Sobey’s Inc., indicated that it expects suppliers to cut prices by one percent and hold that level through 2014.
The largest grocery chain, Loblaw Cos. Ltd., is expected to follow suit.
For years, farm leaders have warned that growing food retail concentration increases the imbalance between food producers and buyers.
However, Canadian Federation of Agriculture president Ron Bonnett doesn’t think these demands for reduced food product costs will work their way back to pressure farmgate prices.
“I really see this as more of a public relations exercise than a real attempt to lower food prices in stores,” he said.
“I’m not convinced they can deliver on that, and I think it would be difficult to deliver. This is an example of one sector of the value chain thinking it is bigger than the rest of us.”
Kevin Grier, senior market analyst at the George Morris Centre in Guelph, Ont., agreed.
He said major traditional retailers such as Sobey’s and Loblaw are under pressure because of low-cost grocery retailers such as Walmart and Target.
“Letters like this demanding a deal on prices are nothing new, but these guys are facing a much more challenging environment now than two or three years ago,” he said.
“They are trying to push the cost-squeeze down, but that is an old story.”
It is not likely to have an impact.
“In terms of the farmer, their price is based on supply and demand so cattle prices have gone through the roof while other commodity prices are softening,” said Grier.
“All the letters in the world are not going to impact that at all. The market demands what the market demands.”
He said the retailer pressure to lower supplier prices could have more influence on packaged and processed products rather than farmgate prices.
“It isn’t that these grocery chains are not large or don’t have influence, but in terms of raw product, how are grocers going to influence wheat prices, and that is what the farmer is concerned about,” said Grier.
“I wouldn’t agree with Ron Bonnett that it is a PR stunt, but I agree with his conclusion that this will not have a major impact at the farm level.”
However, major food companies such as McDonald’s, Tim Horton’s and A&W are having a major impact on farm practices by demanding products that are produced sus-tainably, in some cases with environmental requirements or hormone-free status.
“I think that is where the impact will come, and they can enforce that,” he said.
“In many ways, I think that is where industry should be focusing its efforts in terms of overall costs and regulations and not on prices.”