Food manufacturers complain of ‘double agent’ role of grocery retailers

Jtaylor March 12, 2012 0
Food manufacturers complain of ‘double agent’ role of grocery retailers

OTTAWA — Some of the biggest brands in the food industry say the “double agent” role played by Canadian retailers with their growing store brand offerings is bad for local farmers and consumers.

The Food & Consumer Products of Canada, representing such multinational companies as General Mills Canada and Kraft Canada Inc., told parliamentarians studying the food supply chain on Wednesday that the growth of store brand products in Canadian stores is a barrier to innovation, investment and poses a threat to farmers, consumer choice and competitive pricing.

“Retailers in Canada today are not merely the buyers of our products who control the shelf space. They are also direct competitors. They now play a ‘double agent’ role,” Derek Nighbor, the group’s senior vice-president of regulatory affairs, told MPs on the agriculture committee of the House of Commons.

“Let me be clear from the outset. My remarks today are not to be construed to be anti-store brand nor are they to suggest that the increased prevalence of store brand products are anti-competitive. The challenges our industry is seeing today — and is concerned about for tomorrow — relates not to the presence of store brands themselves, but rather the associated business practices that have resulted at the manufacturer-retailer interface.”

Currently, the top five retailers make up 75 per cent of the Canadian grocery retail market. And stores brands in Canada represent about 20 per cent of the overall retail, a percentage that is expected to continue to grow, Nighbor testified before listing trends in the food retail market.

In addition to “parasitic copying” and “look-alike products” in stores after manufacturers “invest millions of dollars in product development and marketing to establish their brands and to build loyalty with their consumers,” Nighbor complained that retailers are demanding more information from manufacturers.

This includes data such as input costs, product formulations and marketing and innovation plans, he told MPs.

“Some retailers request up to 26 weeks of lead time on new products. This creates serious challenges for manufacturers who are seeking precious shelf space in leading stores — yet are concerned about the longer-term impacts of sharing such information with retailers and how it might be used against them.”

Nighbor said it’s time to update the Grocery Bulletin, housed at the Competition Bureau, which governs appropriate actions in this area. It was first published in 2002 in response to concerns about consolidation in the grocery retail sector, but it “does not address store brand issues and the issues associated with retail acting as a ‘double agent’ or competitor,” he said, pointing out about 6,000 processing facilities in Canada purchase and use over 40 per cent of what Canadian farmers produce.

“We are concerned that if the Canadian government does not review these issues in a substantive way like governments in the United Kingdom, Ireland, Australia, Norway and the European Union have, then we are putting the future of our Canadian food and consumer products manufacturing sector, farmers and Canadian consumers at risk.”

Christopher Kyte, president of Food Processors of Canada, holds a different view.

Kyte, who represents small and mid-sized companies that are owned and operated in Canada, said about 68 food processing plants have shut their doors in Canada since 2007 — and chalks up a “huge trade deficit” to the fact that “multinationals have reduced their manufacturing in Canada. They are exporting less and importing more.”

According to Kyte, the trade deficit for food, beverage, spirits and tobacco products has grown from $1.07 billion in 2002 to $6.32 last year.


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