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I call this meeting to order.
Colleagues, welcome to meeting number 87 of the House of Commons Standing Committee on Agriculture and Agri-Food.
I'm going to start with just a few reminders. Of course, today's meeting is taking place in a hybrid format. The proceedings will be made available via the House of Commons website. As everyone is aware, the webcast always shows the person speaking rather than the entirety of the committee. Of course, screenshots are not permitted.
I'm going to skip over the rest. You all know what we're here for.
Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, October 19, 2023, the committee is resuming its study on efforts to stabilize food prices.
I would now like to welcome the witnesses for today's panel. For the first hour, from Walmart Canada Corporation, we have Gonzalo Gebara, who is the president and chief executive officer. He is joining us via virtual means this morning. Welcome, Mr. Gebara.
We're going to allow five minutes for opening remarks. I'll allow a little give-or-take. If you need a little more than five minutes, that's fine, Mr. Gebara. Then we're going to turn to questions. We'll do that for an hour.
We have Mr. Weston coming in for the second hour.
Mr. Gebara, we go over to you for up to five minutes.
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Thank you, Mr. Chairman.
Good morning to all members of the committee.
[Translation]
Thank you for the opportunity to once again appear before the committee to discuss Walmart's leadership in food pricing.
[English]
We're here to share how we have been working hard to provide Canadians with EDLP, or everyday low prices. At Walmart, we have always been a disrupter within Canadian grocery. This fact is highlighted in the recent grocery market study by the Competition Bureau. It notes how our entry into Canada brought additional choice to consumers and put pressure on competitors to lower prices.
We recently launched and posted on our website a study by Deloitte showing that when a Walmart store opens in a major metropolitan area in Canada, it leads to a decrease in the price of a general basket of consumer goods, saving Canadian families in those areas almost $1,000 per year, no matter where they shop.
If you shop with Walmart, you know that our EDLP price strategy is what differentiates us from our competitors. Recent news stories have highlighted the significant savings Canadians receive when they shop at Walmart. As I emphasized when I first came to this committee in March, EDLP means providing our customers with consistently low prices on products without having to wait for sales events. This means that customers can trust that prices will always be low at Walmart. We're so committed to low prices that a key internal metric of success for us is our price gap—the difference between our prices and our competitors' prices.
Over the last 18 months, as food prices rose across Canada, we continued to strive to maintain a material price gap lower than our competitors'. Through this period of high inflation, we were diligent in holding our prices flat where possible, and in some cases even lowered our prices. This sometimes required us to absorb cost increases or to reject unjustified cost increases from suppliers. To give you a sense of magnitude, last year Walmart received six times the cost increase requests from suppliers compared with prepandemic levels.
In your last study on food price inflation, you heard from industry experts that numerous factors contribute to grocery price inflation long before the products reach grocers' shelves. As reported by the Retail Council of Canada this fall, more than 70% of the final shelf price represents the cost imposed by suppliers. The vast majority of the remaining 30% goes to normal expenses in running a grocery business.
Government policies and regulations, supply chain disruptions, foreign conflicts, domestic labour shortages and climate change events all have inflationary effects as well, not only on the cost of food for suppliers but also on the grocers' operating costs. This context is important, but ultimately we know that Canadians want solutions.
I have some examples of our company-wide efforts to combat inflation over the last 18 months. We've invested significantly in our Walmart brands, offering 3,000 budget-friendly food and consumable products. Canadians can rely on Walmart brands to save an average of 33% more than national brand prices at our stores. We've expanded our 97¢ program, offering an assortment of pantry staples for less than a dollar by absorbing significant cost increases from suppliers. Our promotional programs, such as Rollback and Save Now, offer savings of around 10% to 40% on thousands of items. This year during the holiday season, we started these programs even earlier than last year. For Thanksgiving this year, we offered a meal at a price lower than last year's price. We launched our December Dollar Days to highlight thousands of items under $10 to help with our customers' holiday needs.
In our submissions to both and this committee, we have provided policy recommendations that could help the government stabilize and even lower food prices. This includes a more robust Competition Bureau to examine competition throughout the supply chain, including suppliers; harmonizing regulatory requirements to lower the cost of goods for consumers; developing a supply chain labour strategy; and prioritizing regional development agencies to support building Canadian manufacturing capacity in key food sectors—namely, pasta, beans, frozen foods, meat packaging and infant formula.
The whole value chain needs to be accountable for lowering food prices for Canadians. That includes manufacturers, producers, suppliers, retailers and the governments too. As our founder, Sam Walton, said, “If we work together, we'll lower the cost of living for everyone”.
Let me assure you, Mr. Chairman, that more than 100,000 Walmart Canada associates work hard every day to fulfill the objective of lowering the cost of living for Canadians.
I would be happy to answer any questions you may have at this time.
Thank you very much.
Thank you for being here this morning, Mr. Gebara.
I've been listening to you carefully this whole time. I remember when you appeared before the committee in March, and you gave the impression that you were very open to signing on to the code of conduct. Maybe I'm naive, but I thought you had said you would. However, you told Ms. Rood that you didn't think the code was acceptable. Mr. MacDonald asked what we should make of your position, and you said that we should keep inviting you to take part in the committee's proceedings to help bring down prices.
Mr. Gebara, you were invited to participate in the discussions on the code of conduct, but you aren't participating. How do you, as one of the biggest players in the market, explain to consumers the fact that you aren't involved in the discussions and that, once the code is more or less finalized, you are almost undermining the whole thing by refusing to sign on?
I want to believe you're acting in good faith, but after listening to the discussion this morning, I have to tell you I see a credibility issue, frankly.
How do you explain that to those who make the food, the small and medium-sized processors, and the people who are struggling to buy groceries?
What has to happen next in order for you to participate in the healthy regulation of the grocery market? That is the goal.
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Thank you very much, Mr. Chair.
Mr. Gebara, I need to revisit this issue because I think that, given the fact that you appeared before our committee in March, you should have had some anticipation that similar questions would come your way.
In March I very clearly asked about salaries, the wages you pay your frontline employees. Just given the fact that we do operate in the context.... Ms. Taylor Roy used the term “robust”, and “robust” is certainly an interesting way of describing executive compensation and pay.
With respect, sir, I am a little bit perturbed that you, as the CEO of Walmart Canada, given the fact that we are talking about food price inflation and that we know the stats that so many working people can't afford to even provide the basic necessities for their families....
I've seen your website, and we have seen the documents you have provided to this committee. You've certainly made a great show that you care about your employees, but the fact that you, as a CEO, are unaware of whether your employees are having to access the food bank to pull themselves through.... I think that would be a bit disconcerting to the Walmart Canada employees who are watching this right now.
Again, if we're to take you and other CEOs seriously on this very important subject to Canadians, how can we do so when you don't even appear to understand how many of your employees are having to access a food bank or whether they're being compensated appropriately?
If they are being kept in a state of being the working poor, does it not concern you, sir, that you don't have an accurate number on that?
I want to thank Mr. Gebara, CEO of Walmart Canada, for being here as well.
It's an important conversation, and Canadians are concerned by the behaviour of the major grocery chains given it's a highly consolidated sector here in Canada.
The reason we're here is that Canadians want transparency, accountability and a commitment to fair practices in the face of concerns about high food inflation and potential consumer gouging. That's what we're hearing.
You've already mentioned it a few times. We talked about strengthening the Competition Bureau here in Canada. It sounds like you agree with it, your quote—I think it was originally from Sam Walton—was, “If we work together, we'll lower the cost of living for everyone”. There exists that consideration of strengthening the Competition Act to give the bureau more power to take action, allowing the bureau to compel the production of information in order to conduct effective and complete market studies.
I just wanted to get you on record again saying that you're agreeing that competition is good, and you're agreeing to give more powers to the Competition Bureau.
Hello, Chair and committee. Thank you for the invitation to speak with you again and to discuss the steps that Loblaw is taking to help Canadians.
While it appears that the peak of inflation is behind us, we know that increased food prices still have a real impact on Canadians as they try to put meals on the table, while balancing their budgets. We know that's harder today when almost everything has rapidly increased in price, including housing, heating and fuel, leaving less income for essentials like food.
It's an appalling statistic that almost 80% more Canadians turned to food banks this year compared to 2019. We all need to do more to help. This is a responsibility that we take very seriously, and one that Loblaw's entire team continues to work on.
Over the last two months we've been an active participant in discussions with government, sharing ideas and providing details about our specific actions. As we outlined in our recent letter to the committee, we focused our efforts on delivering additional value across the basket of 35 items and categories that matter most to customers—like milk, butter, eggs and chicken—where we are meaningfully lowering prices. These critical items are present in almost every grocery basket and make up nearly 10% of our sales.
We're delivering these savings through the pricing and promotional programs that customers understand and respond best to. They are making a difference. Let me give you an actual example.
On a product like chicken drumsticks, the cost to us has risen by 30% since 2019, but the investments we're making in lowering prices mean that the average price for this product over the last 12 weeks has been 4% lower than four years ago. This is on top of super-low everyday pricing in our discount stores, where we routinely sell products like bananas, sugar and milk all below cost.
We compete every day with other major grocery chains, global multinationals like Walmart and Costco, regional chains, local independents and online companies like Amazon. Canada is an extremely competitive grocery market. We know that, if we do not provide real value, customers will and do shop elsewhere.
Since the beginning of September, we've saved customers even more money through our PC Optimum points and members-only pricing, and through programs like retro pricing at No Frills and the Maxi Merci campaign in Quebec, which has served more than 2.2 million people.
We are also the only national grocer that offers price matching in all of our discount stores. Each year more than 10 million customers take advantage of this program, and in just two months we matched competitors' offers to the tune of $38 million.
Finally, in addition to those immediate steps, we are changing the way we invest in communities by opening more discount stores in more markets. By the end of next year we will have added nearly 70 new or converted discount stores, reaching an additional two million Canadians with the best combination of quality and value available in the country—on average 20% cheaper than a non-discount store.
These efforts are making an impact. We watch closely the prices in our stores and the inflation levels at our checkout. Compared to the StatsCan food CPI of 5.4% in October 2023, our internal inflation number is 5.1%. When we look at products that are actually purchased in our stores, we see that our internal inflation today is already below the overall CPI.
We are doing our part to help stabilize food prices for our customers, but as we've stated time and time again, we cannot do this alone. Recent studies from the Bank of Canada and the Competition Bureau have proven that grocery stores are not the reason for high food prices. As such, we are unable to unilaterally resolve the inflationary pressures.
As I explained to this committee earlier this year, for every $25 in groceries sold, we earn just one dollar in profit. That means that, even if this industry had zero profits, a $25 grocery bill would still cost $24.
It is important to stress that the suppliers, who make up 70% to 80% of the price of products, remain largely absent from this effort. Unfortunately, we have not yet seen a manufacturer come forward with a proposal to decrease costs. In fact, many of them are already signalling or submitting higher-than-expected cost increases for next year.
There is some good news. Food prices are definitely stabilizing, and we expect that to continue, but we are concerned that the grocery code of conduct could slow down this momentum.
When I was here with you six months ago, I voiced my support for a fair, balanced and reciprocal code. I also cautioned that a one-sided code that removes a retailer's ability to hold vendors accountable to their commitments would risk higher prices. While the principles of the code, as it's currently set up, are sound, when you get into the details there is significant risk of higher prices and empty shelves.
There is clearly a lot of passion around this subject. To inform this discussion, we have provided committee members with the latest copy of the code and the details of our concerns. I would like to share one specific example. The current drafting of the dispute resolution principle in the code gives manufacturers the ability to escalate disputes around cost increases to a yet-to-be-defined third party mechanism. In Australia, that mechanism has supported increases in costs in essentially 100% of cases. If that had happened in Canada since the beginning of last year, it would have resulted in $750 million in additional inflation pressure for consumers.
That risk is very real. On its own, it is a reason for pause. There are three other specific areas of risk in the code, including sections 2.5, 3.4 and 4.4. We have laid them out for this committee in the material provided. I'm happy to offer a more detailed perspective on any of them, but in our judgment, each one increases the likelihood of higher retail prices or less product on the shelves, directly or indirectly.
I must say that I am perplexed as to why other industry leaders are making such confident claims about the code's ability to stabilize prices when it was never intended to do so. The conversations about the code began years before inflation actually took hold. A variation of this code did not help stabilize prices in the U.K., Australia or Ireland over the last two years, none of which have lower food price inflation than Canada. I am worried that amidst our collective enthusiasm to deliver meaningful relief for Canadians on the cost of food, we are travelling in hope toward something that will do exactly the opposite simply because it sounds good. I would urge this committee to look closely at the details.
We completely agree that there is an opportunity to improve the way retailers and manufacturers work together and that there are certain things we can do differently ourselves. We are taking action on this front already. A few weeks ago, we announced our new small supplier program, delivering concrete benefits to over 1,000 manufacturers to reduce the cost and risk of doing business with us.
Either way, we will do more. We absolutely remain open to the right version of the code, but we simply must not do it at the expense of our customers. Loblaw's purpose is to help Canadians live life well. We will always be ready to do our part and to come to the table for these conversations. We will stand up for customers even if it is unpopular.
We welcome the committee's continued interest.
Thank you.
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We absolutely will sign the code. We have always said that we would sign the code. We just need to sign a code that doesn't increase the risk of higher food prices to Canadians. As the code is currently drafted, our strong conviction is that it will do so.
As I mentioned before, the code was set up with the intent of improving the relationship between manufacturers and retailers. It was never designed to lower food prices. We're in a very different circumstance right now, in which food prices have been increasing across the board.
This idea that grocers are the problem, I think, is part of what has shifted the dialogue into somewhat the wrong place. I have a list here of manufacturers, all of whom have claimed that price increases have been the driver of their excellent performance over the last 12 months. That includes Pepsi in their quarterly results, Nestlé in their quarterly results, Kraft Heinz in their quarterly results, Procter & Gamble, and the list goes on. These are large multinational manufacturers, and the code of conduct has a set of clauses in it that reduces the grocers' ability to negotiate hard against those vendors.
We were able to push back on 18% of what we considered to be unjustified cost increases across the industry last year. Based on the way the code is drafted today, we will be severely restricted in terms of our ability to do that.
It's very plain to see that, in that circumstance specifically, it will lead to higher cost increases for manufacturers and that will lead to higher prices for consumers.
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The best outcome here without question would be a code we could all sign on to. There are some other retailers who are clearly enthusiastic supporters of the code. I'm not sure whether or not they have spent time on the details of the drafting, because it is perplexing to us that they are as enthusiastic as they are about how they think this code is going to reduce prices.
It may have to do with the fact that they are not as well developed in the discount retail space as we are, as Walmart is and, for example, as Costco is. Discount stores depend on their ability to drive a hard bargain with their manufacturing counterparts. Yes, we have to do our absolute best to support small and medium-sized manufacturers and growers in this country. That's what our small-supplier program is a concrete example of actually doing.
However, the thing about this code is that it's enabling the largest multinationals in the world, which are 10 times larger than Loblaw on its own. That's a position in which we're not able to negotiate as firmly against unjustifiable cost increases. Yes, this code will and should help small manufacturers and growers, but at the same time it's going to unlock and empower the largest multinational manufacturers in the world, which are already standing in the way of lower food prices for Canadians. That is a real challenge.
As I said before, the code may sound good, but if you don't look into the details, then we are going to end up in the opposite place from what this code intends to do.
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Food prices are the most important reason that we're here today, and I can tell you that Loblaw believes wholeheartedly in fair pay. We offer some of the most competitive wages in the industry.
The fact remains that a large portion of our colleague base is part-time, and the reason it's part-time is that shoppers don't shop all the way throughout the day. They shop in the evening and they shop on the weekends, so we need to have people working in the evenings and working on the weekends. They need to be part-time shifts and part-time jobs.
Part-time jobs tend to have wage rates that are closer to minimum wage. As you know, we have a minimum wage system across the provinces that is now indexed to inflation. Since 2019, the minimum wage has increased over 20%, and our pay in our unionized labour force, which is the substantive portion of our employees, has increased commensurately with that minimum wage increase.
There's always opportunity, but we need to make sure that we're a productive and efficient organization, and we have to do it while making sure that we're paying, absolutely, the right wages for the industry. If you take our average wage as an enterprise, it's over $19 an hour, and that is regarded, as a general statement, in line with a living wage.
Thank you, Mr. Weston, for being here in person again. I appreciate it. There are so many questions I could ask you.
One thing I want to talk about is the measures that our government is taking to address long-term issues in our country. These are things around, for example, the P2 plastics.
Obviously, on fighting climate change, as you mentioned, the increased cost of groceries has been driven a great deal.... In fact, we heard last time that one of the stores expects orange juice to go up by 38% because of the climate impacts on crops in different countries.
I know it's the job of business to focus on short-term profit and shareholder value. It's the job of government to think about larger issues and not necessarily the short term.
At the environment committee, on which I sit right now, we are studying clean water. There is a lot of concern about microplastics in the water and the effect of those on human health. Of course, that has a huge impact on health care costs over the long term. I appreciate the fact that you are working on solutions to this as a major user of plastics.
We have to balance putting in ambitious goals to motivate people and ask people to make changes, with looking at the impacts on companies. You said you didn't think the timeline of two and a half years was reasonable to come up with a solution. You've been working on this for a while. The industry has known about our ambition and our desire to protect Canadians' health by making these changes.
Why do you think there has not been a solution, and when do you see that coming?
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It's an excellent question.
I would say that we are a family business. Our family has been in this business for four generations, so we think about the long term as well. It's why we're so ambitious in our net-zero carbon targets. It's why I co-chair a global effort for the retailers in the manufacturing industry to find ways to reduce plastic waste across the industry.
We have over two trillion dollars' worth of sales in manufacturing and retail committed to what we call the “golden design rules” for reducing plastic waste. We're big advocates of extended producer responsibility, which has been innovated here in Canada. We believe that system design change is ultimately going to lead to the most effective results.
We have to work really closely with the environment ministries at the provincial level and the federal level to make sure that we are putting in policies that are achievable and are actually going to deliver a constructive benefit.
This P2 is a great ambition, but it's not easy to execute. In fact, I think I would say it's impossible to execute in this time frame.
How much longer do we need? I don't know the answer. However I can tell you this: I'm really encouraged by the level of momentum that the industry has globally on this subject, so I think we're going to get it.
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Thank you, Ms. Taylor Roy.
Mr. Weston, I'll exercise just a few minutes for a few questions. I'll try to move as quickly as possible.
Part of your opening statement was about the code of conduct not necessarily driving grocery prices down. I would agree with you on that. We have to be very transparent about what the code does and doesn't do. We can't be telling Canadians that a grocery code of conduct is going to result in a huge drop in prices, but this committee also has an obligation to the supply chain and to the farmers who provide the products to your stores.
You talked about your concern about how the prices would go up. I'm looking at a graph from Dr. Charlebois, who laid out price increases over 10 years in countries that had a code versus those that didn't. I take note that there's a lot that goes into food pricing, but I want to dig into what you provided this committee specifically.
You mentioned clause 2.5, and I want to read it for the benefit of everyone. It states:
For the purposes of the Code, an agreement is anything that defines the material elements of a relationship between commercial parties. This can include contracts, invoices, purchase orders, bills of lading, emails and other forms of mutually agreed material that memorializes an understanding between parties.
I practised law for a short period of time. I might not have the experience of some of your corporate lawyers at Loblaw, but if you have an email, a bill of lading or some type of payment, then surely there would have been some discussion about the price at which the product was going to be charged. I can appreciate that it wouldn't be the ironclad commercial agreement that you might be seeking, but I think about a farmer in my own riding who might be providing produce for you. One of your agents at Loblaw says, “Look, we'll buy tomatoes at x amount.” That is a contract, so what is it specifically...?
You talk about negotiating in good faith. Those are examples of, at least, a commercial agreement between your company and a supplier. Why is that not good enough for you? Why is that code problematic, specifically?
You talk about negotiating in good faith, so what specifically don't...? If there was an invoice or a purchase order, there would have been some conversation about what the terms would be. Maybe they're not as exclusive or as high-end as a big food manufacturer, but why is that so problematic for you?
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This is the last thing I'll ask very quickly.
You mentioned filling orders. You go out to consumers and say, “Look, we're going to have this product at this price.” You then said the food manufacturers are not providing the product that you expected.
We've heard instances both privately and, I think, even before this committee of the idea that there would be significant fines if someone only provided 98.5% of the expected product delivery. What, in your mind, is a reasonable tension there? If you ask for 50,000 units of a certain product and they come in at 98.5%, is it reasonable that a food retailer should be able to impose that?
I appreciate you want certainty. I understand that, Mr. Weston, but there are circumstances where that can add to the food costs through the entire supply chain and then get passed on to consumers, so what is reasonableness?
When I look at the provision, there's talk that there's a reasonableness clause in here such that you couldn't impose unless they really, significantly did not meet their order in a way that would be egregious under commercial terms.