Fuel Cost Surges Spark Industry Fairness Concerns Among Independent Grocers
For independent grocery store owner Yousef Traya, understanding the financial pressures that are pushing his suppliers to hike prices on products he sells is as simple as pulling up to the gas pump.
“We’re all feeling it,” said the owner of Bridgeland Market in Calgary. “Being in the business of groceries, everything comes on a truck, or on a ship or plane. So there’s no way we’re not going to be touched by it.”
The Globe and Mail was first to report last month that suppliers such as Maple Leaf Foods Inc., Tree of Life and Unilever PLC were informing grocers of their plans to apply fuel surcharges or overall cost increases, as the conflict in the Middle East has constricted the global oil supply and caused a spike in prices.
But as more of these surcharge notices trickle in, owners of independent stores are increasingly worried that they are disproportionately bearing the burden of additional fees.
That’s because Canada’s largest grocery chains have been refusing some added charges. Earlier this month, Loblaw Cos. Ltd. chief executive officer Per Bank said the grocery giant is “fighting back on price increases from our suppliers,” and as of early May had succeeded in pushing back on any added fees. Metro Inc. has also been pushing back on such requests, and Sobeys parent Empire Co. Ltd. told The Globe last month that it had declined a surcharge.
By contrast, because independent grocers lack the size and market power of the retail giants, they say refusing supplier cost increases can lead to stopped shipments, and that they do not have the same ability to negotiate.
“My main concern would be, if there are price increases coming, that they be applied universally – not just be dumped on independent stores,” said David La Mantia, owner of La Mantia’s Country Fresh Market in Lindsay, Ont.
And those price hikes are coming. For example, Quebec vegetable processing giant Nortera Foods – which owns brands such as Del Monte, Arctic Gardens and Green Giant in Canada – imposed a “temporary freight-related cost increase” that was set to take effect no later than May 15, according to a letter sent to its suppliers and obtained by The Globe.
“This exceptional, force-majeure-related measure is necessitated by the extraordinary disruption currently affecting global fuel and freight markets, including immediate double-digit percentage increases to fuel surcharges due to war-related impacts in the Middle East and Iran,” the letter stated. The cost increases had been applied by Nortera’s own freight carriers and were being passed on to customers without a markup, it added.
Other suppliers that have sent similar notices in recent weeks, which were also obtained by The Globe, include Toronto-based Canadian Linen & Uniform Service; Vaughan, Ont.-based beverage distributor Allmart Distributing; CTS Food Brokers Inc. and its related firm Atlas Foods; Maple Leaf; Unilever; and Sussex, N.B.-based manufacturer G.E. Barbour Inc., which sells tea, nut butters and spices.
“Yes, unfortunately, we have had to implement a price increase primarily due to rising energy costs impacting multiple points of our supply chain, production, and general overheads,” G.E. Barbour president Jeff Rose wrote in an e-mail to The Globe.
Many of the raw ingredients in the company’s products – such as peanuts, almonds, teas, spices and vanilla – cannot be sourced in Canada, and incur higher transportation costs to ship from places such as California and Madagascar to New Brunswick, Mr. Rose wrote. Costs are also rising for packaging made from oil derivatives, such as lids and bottles, he added, and for transporting products to its customers.
Unilever said that its price hike on Hellmann’s mayonnaise, which will take effect on July 6, is a standard increase rather than a fuel surcharge (which is often communicated as a temporary measure). The move “reflects cumulative, sustained cost pressures across our supply chain rather than short-term volatility,” Tom Langan, head of communications and corporate affairs for Unilever North America, wrote in an e-mail to The Globe.
Other suppliers did not respond to requests for comment.
When higher costs are passed along to small grocers, they face a difficult choice: increase their prices for customers, or take a hit to already-slim profit margins. In Calgary, Mr. Traya said he understands shoppers’ concerns about food affordability, and has resisted price hikes where possible.
“It comes out of my bottom line, definitely,” he said.
And the pressures are expected to increase further.
“That’s what we’re hearing: In the next few weeks, buckle down,” said Gary Sands, senior vice-president of public policy and advocacy at the Canadian Federation of Independent Grocers, adding that the issue is of particular concern for rural and remote communities that are served by a single, independently owned retailer.
“We certainly understand why they’re applying the fuel surcharges,” Mr. Sands said, adding he is sympathetic to cost pressures that suppliers are also facing. “What we have a problem with is that they’re being applied unevenly, and that puts the independents at a competitive disadvantage.”
This article was first reported by The Globe and Mail
