Supermarket chain Metro has rejected calls for the federal government to impose a new code of conduct to protect suppliers from being squeezed by demands for price cuts from the country’s big grocers.
Eric La Fleche, CEO of Montreal-based Metro, told a CIBC retail and consumer conference Wednesday that intervention isn’t required because the chain’s terms with its suppliers are “very competitive” but fair.
However, Metro (TSX:MRU) won’t allow those suppliers to recoup losses suffered at other supermarket chains at its expense.
“I have been very outspoken with our suppliers when we had a meeting with them last fall that the procurement synergies that some people are claiming are not going to be at our expense,” he said.
Tensions between retailers and suppliers have run high since Sobey’s, which paid $5.8 billion to acquire Safeway Canada, demanded retroactive price breaks from its suppliers.
The issue was also raised with the federal Competition Bureau, which recently approved a $12.4-billion takeover by Loblaw (TSX:L) of Shoppers Drug Market (TSX:SC).
However, the federal agency imposed “behavioural restrictions” on Loblaw’s relations with suppliers to maintain competitive markets.
Several grocery and large supplier groups have called for a code to ensure a level playing field as the industry continues to face pressure to consolidate due to intense competition from U.S. companies, which is adding further pressure to already razor-thin margins.
La Fleche said gaining a little extra rebate may help companies as they grow through blockbuster deals, but it won’t make the chain successful in individual markets.
“We think we have the size and scope to execute really well and compete effectively in our markets and be the right partner for the suppliers who want to do business and grow their businesses in Quebec and in Ontario,” he said.
Earlier, Marc Poulin, CEO of Sobey’s parent Empire Company Ltd. (TSX:EMP.A), told the conference that relations with suppliers are “harmonious” despite tough negotiations that he said flowed from its need to harmonize different supplier arrangements with Sobey’s and Safeway.
Poulin said the company is seeking a one per cent price cut from suppliers as part of a broader effort to drive $200 million of cost savings over three years from the acquisition, half in the first year.
He said suppliers ultimately want to have access to Empire’s expanded footprint in Western Canada and deliver promotions to its customers.
“Now, as being the leading grocer in Western Canada, we do have a lot to offer and I think overall we’re quite pleased with the way it is currently going with our suppliers,” he said, adding the company has not come across anything that would put its cost-cutting target in jeopardy.
Both supermarket chains said the industry remains very competitive in the face of consumer demand for value.
In addition to improving their discount banners, Metro and Sobey’s are also working to offer “compelling value” at conventional banners by offering healthier food offerings.
While price is a driving force for some consumers, many customers are attracted by a unique offering that differentiates the chain from its competitors, said Poulin.
“The vast major of Canadians are seeking more than just the price from their shopping experience, especially in food retailing, and therefore it’s for us full-service retailers to provide a compelling value proposition.”
La Fleche said meeting customer needs, even in smaller, less affluent communities, can foster loyalty.
“It’s very encouraging that when you raise the bar, when you give a great customer experience, you get rewarded,” he added.
Metro is also expanding its pharmacy reach by preparing to open 18 stores inside Target stores in Quebec starting this spring or summer.
La Fleche said he hopes the U.S. retailing giant will overcome its sales challenges in Canada.
“Hopefully they will solve a few of them before we open the pharmacies because we’re looking for growth with that format.”
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