How Sobeys and Superstore legally steal from small businesses | City | Halifax, Nova Scotia | THE COAST
Putting food on the shelves in big grocery stores costs money for the little food makers.

How Sobeys and Superstore legally steal from small businesses

It’s good for (big) business to control an industry

The sun is streaming in through a large bay window in front of the house. The phone sits on the table, its cracked screen protector throwing weird reflections on the wall. The phone is on speaker with a recorder set up by the mic. “Do you mind if I record this conversation?” I ask. The recorder is already running because it’s cleaner than notes with chicken scratch handwriting. And Canada has the legal standard of single-party consent, which means I can record even if she says no—but polite is polite.

“My question to you first off is, do you have to use my name and business name?” asks the speaker on the line.

I don’t. I want to—stories with names have more power and credibility—but I report on power. I understand how it works. It would be naive not to understand the power two massive grocery store chains have over her life and livelihood. And this is not new information; the CBC has been reporting on how large retailers abuse their suppliers since at least 2014. Hell, these big companies even do it to each other, so why wouldn’t they do it to the small fish in the pond?

So Jenny is talking to The Coast on the condition of anonymity. She, like all but one person I spoke with for this story, was worried about retribution from Sobeys or Superstore if I used her real name or any identifying information.

Jenny got into the food business because her previous career was too unpredictable. Long hours, lots of travel, inconsistent scheduling and short contracts. She wanted stability in her life, so she decided to move back home and start making food. She started making her formulations (industry jargon for recipes) and then found a government program designed to help food producers. She got grants, training and help from the government to scale up her business.

She started small, as most businesses do: Farmers markets turned to independent grocers and independent grocers turned to the giants. Sobeys approached her and asked if they could sell her food. She said yes, and her nightmare began.

Putting food on the shelves in big grocery stores costs money for the little food makers. How much depends on the product and where it is in the store. Health food section in the Atlantic region? That’s about $15,000 per SKU that the producer has to pay the large chain. For a national product, that could be anywhere between $50,000-$100,000 per SKU. Grocery stores also take a cut, usually around 30-35%, of everything sold.

One cheese supplier sells his product to both Sobeys and Superstore for the same price. His product costs $2 more to buy in Superstore than it does in Sobeys. On top of their cut, these grocery stores also make a lot of money in fees they charge their suppliers.

“The game they play is that they fine you, I mean like $1,200 at a time, for crap they make up that isn’t true,” says Jenny. “We call it the tax; you can quote me on this; it’s what we call it. Do you want examples?”

She sends me an email. The email chain starts in early January, a promising start to the new year. Jenny’s writing an email to a Sobeys customer service agent. She’s received a fine, and she’d like to contest it. She was fined because the delivery was late because of a snowstorm and packaged incorrectly.

“I can walk you through creating a claim,” the customer service rep replies, less than helpfully.

A week goes by.

Jenny sends another email asking for an update on why she got the fines. Three weeks after her initial email, Jenny sees—for the first time—the Sobeys vendor guide, which details the exact specifications required for Sobeys to accept a shipment without fines. The specifications she did not comply with three weeks earlier.

Fifteen minutes late? $500. Was something packed incorrectly? $35 per pallet in the messed up order and added fee of $250 per order. And each subsequent rule break adds another $250 per violation. All complaints about this process are dealt with via an automated portal.

“You can only go through the portal; you don’t talk to a human being, and if you do, they pass you off over and over,” says Jenny. “So that you will give up and not ask for your money back.” The industry term for that is “breakage.”

“Literally, Matt, Sobeys and Superstore probably steal millions of dollars in this way,” she says with the passion of someone who’s eaten a lot of bullshit fines.

The thing is, though, these grocery barons aren’t breaking the law in an easily provable way, if they’re breaking the law at all. It’s something our legal system has called mens rea—when someone steals a physical thing, like a wagon, it’s very easy to prove beyond a reasonable doubt that 1. The wagon was, in fact, taken (actus reus), and 2. The intent in taking it was criminal (mens rea). With a contract in place, like an agreement to supply food to Sobeys, it is much harder to prove that 1. Something was stolen, and 2. If it was stolen, that Sobeys did it maliciously.

What complicates this even further is the legal defence called “colour of right.” The brief version of this defence is that when a contract or agreement is involved, it’s extra hard to prove criminal intent.

Even though, to non-legal types, this seems like a clear-cut case of a powerful entity criminally abusing its power in an exploitative and illegal way, it is not. In fact, because this would be so hard to prove in a criminal court, Jenny’s only real recourse is a civil case. And in a civil case, a monied party like Sobeys can use its economic leverage to bully the legal system, making it very likely Sobeys gets the outcome it wants.

Jenny doesn’t have the money to fight the big grocers. She reckons she’s been done for $10,000 by Sobeys after being able to recover about $2,000 through the breakage obstacle course.

And these are just the fees on the back end. There are also costs the grocery barons force upon their suppliers once the products are in the stores.

“We were charged $100,000 to just secure space to sell the product on grocery store shelves," said Ted Grant, who used to run Viveau, a local flavoured water company that was driven out of business, in large part due to supply chain challenges, the cost of doing business with Canadian grocers and rising transport costs. “When you submit an invoice to the grocer, you’ll see what you actually get paid. There’s a bunch of chargebacks baked in there that are usually a surprise.”

These chargebacks are for things like damaged packages, or if the food is a month away from its expiry date. Sometimes grocery stores will charge thousands of dollars to evaluate how the product looks on grocery shelves.

It’s a nasty industry. And it’s not just the chargebacks that do damage.

"We started this business with a proper margin,” says Grant about Viveau before the pandemic. But during the pandemic, the cost of making Viveau went up. Cans needed to be imported, the cost of fruit went up, box board's cost increased, and fuel prices went up. The increases were endless. Grant needed to increase his prices and needed to ask permission from the grocers to do so.

“And so when we went to one of the biggest retailers in the Canadian landscape and said we needed a 16-cent increase,” says Grant. “We were denied, and then you realize the writing's kind of on the wall.”

Bang bang, grocer shot them down. Bang bang, Viveau hit the ground.

There is very little small companies can do to stand up against the exploitation of the functional grocery monopoly in Canada. Without governmental and regulatory intervention, small and medium food suppliers will slowly but surely be churned out of the market as Sobeys and Superstore consolidate their operations.

Roughly 87% of the food eaten in Nova Scotia comes from somewhere else. Because Sobeys and Superstore are so predatory to local small businesses, if there is ever a widespread food shortage due to, oh, I don’t know, an impending climate apocalypse that we are not at all mitigating, a lot of us are going to starve as a direct result of their business practices. It’s simply not profitable enough for grocery barons to invest in local food infrastructure. It is, however, quite profitable to get rid of local food infrastructure completely and be one of the only two options for food in town.

This is a problem requiring government intervention: To treat a human’s need to eat above a corporation’s desire to have a strong fiscal quarter.

I’m not holding my breath.

About The Author

Matt Stickland

Matt spent 10 years in the Navy where he deployed to Libya with HMCS Charlottetown and then became a submariner until ‘retiring’ in 2018. In 2019 he completed his Bachelor of Journalism from the University of King’s College. Matt is an almost award winning opinion writer.

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