Agriculture Committee on March 27th, 2023

[The Vice-Chair, Conservative, John Barlow]

Good evening, colleagues. I call this meeting of the Standing Committee on Agriculture and Agri-Food to order.

I'll start with a few reminders for our witness today, so he has some background information on how things work at the committee.

Today's meeting is taking place in a hybrid format. The proceedings will be made available via the House of Commons website. The webcast will always show the person speaking, rather than the entirety of the committee. Screenshots and taking photos of one's screen are not permitted.

Members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. If interpretation is lost, please inform me immediately. I will ensure interpretation is properly restored before resuming the process. Before speaking, please wait until I recognize you by name. If you are via video conference, like Mr. Gebara, please click on the microphone icon to unmute yourself when it's time. For those of us in this room, our microphones will be controlled by the proceedings and verification officer.

Mr. Gebara, when speaking, please speak slowly and clearly for the benefit of our translators. When you are not speaking, please have your microphone on mute.

I remind you that all comments by the members and witnesses should be addressed through the chair.

We have a few substitutions today. I'd like to welcome, on the Conservative side, Mr. Epp, who is subbing in for Mr. Steinley. We also have Mr. Aldag for Ms. Taylor Roy and Mr. Casey for Mr. Drouin.

We have one witness today and, pursuant to Standing Order 108(2) and the motion adopted by the committee on Wednesday, October 5, we are finishing up the study on food price inflation.

I would now like to welcome our witness. From Walmart Canada Corporation, we have Gonzalo Gebara, president and chief executive officer.

Mr. Gebara, you have up to five minutes for your opening remarks, after which we will proceed with the rounds of questioning from the various parties. I will signal you with a bit of a wave of my hand when you have about one minute left to wrap up your opening remarks.

Welcome, everyone, to this meeting.

Mr. Gebara, I will turn it over to you for five minutes.

[Gonzalo Gebara, President and Chief Executive Officer, Wal-Mart Canada Corp.]

Good evening, Mr. Chair and members of the committee.

Thank you for the opportunity to provide Walmart's perspective on food inflation in Canada.

I want to thank the committee for inviting me today and giving me the opportunity to share Wal‑Mart Canada Corporation's view on this important topic.

I am Gonzalo Gebara, and I was recently appointed president and CEO of Walmart Canada. I may be new to Canada, but I'm no stranger to Walmart, having been part of this business for more than 20 years.

We’re committed to doing our part to help ease the burdens in the food aisles as well as in our general merchandise offerings. If you’ve shopped at Walmart, you’ll know that we are different from our competitors because our core mission is to help Canadians save money and live better.

The Walmart brand is known globally for our EDLP—short for “everyday low price”—pricing strategy. This is not a stunt or a response to the challenging times we are living in. EDLP means that when you shop at Walmart, you know that you don’t need to wait for a sale to get low prices. Every single day, we strive to maintain a price gap compared to Loblaws, Sobeys and Metro. Our EDLP is what differentiates us from our competitors. Reducing the noise of promotional activity also drives consistency and efficiency with our suppliers and helps drive savings for our customers.

With this philosophy, we proudly serve three million Canadians in-store and online every day. We operate more than 400 stores coast to coast to coast. We employ more than 100,000 associates in towns and cities across Canada.

Our financially stretched customers have told us that in these inflationary times our everyday low prices are more important than ever. Walmart has experienced other inflationary environments. I lived in Argentina and led the Walmart business in a country where inflation went from 20% five years ago to almost 100% last year, so I know that our customers and all Canadians are feeling the pain from inflation. That’s why I want to state clearly that Walmart Canada is not attempting to profit from these inflationary conditions.

In fact, Walmart Canada’s gross profit rate for its food business actually declined last year, and our company’s total operating profit in dollars also declined last year. The past two years have presented a perfect storm of external factors that have driven up food prices. These inflationary pressures are passed through the entire supply chain and ultimately impact pricing. While customers only see the final price on the shelf, the reality of food inflation is that there are multiple touchpoints along the way where inflation has taken hold. All stakeholders must do their part to control costs—from processors to suppliers to retailers.

The current challenges don’t change Walmart’s mission to help Canadians save more money to live better. Fighting inflation is in our DNA. We’ve taken a series of concrete measures, including controlling our internal operating costs and identifying improvements in our supply chains to help ensure our customers have access to the lowest prices. In addition, we’ve worked hard to help keep prices down on our private label products, offering savings against many national brands. We’re continuously monitoring our costs so that we can pass on future savings to our customers. We’re doing everything we can to fight inflation and keep prices low, but we also need the government’s help.

We testified at the House transport committee last year on how Canada can create a more resilient supply chain. We’re pleased to see the committee accept our recommendations, and we hope the government does too. We’ve also made other recommendations on a voluntary basis in response to the Competition Bureau’s market study. We trust that the bureau will thoroughly assess all information it receives and make its independent recommendations to the government in due course.

While Canadians are spending more on the everyday items their families need, we are committed to doing our part to help them save money so they can live better.

I would be happy to answer any questions you may have at this time.

Thank you very much.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Gebara. I appreciate your sticking right to the time.

I now will open the floor for questions.

Colleagues, we have just the one witness for the full hour, so I would assume that we'll go three rounds or until the questions are exhausted. If the parties don't have any other questions, we'll maybe throw it around at the end if we have a bit more time, but I'm sure we'll get the three rounds in to start. Again, if there's some time at the end, we can address that then.

We'll start with the Conservatives and Ms. Rood for six minutes, please.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

Thank you, Mr. Gebara, for being here with us today, and thank you for your statement.

This committee has heard from many witnesses about glaring faults in the practices of grocery giants and in how they treat our farmers and producers. Walmart is already considered to be one of the worst in the industry for imposing fees on its suppliers. I've heard numbers like $900 for missing a label on a box or a bag of product, or a couple of thousand dollars for shorting an order by even two boxes. I've heard of late fines for truck drivers who were stopped because they didn't make their appointment time because they didn't have safety shoes on while they stayed in their own trucks.

It's this type of nickel-and-diming that makes Walmart stressful to do business with, and it also negatively impacts the livelihoods of those who do. When you find a wholesaler or a distributor, they can recoup those costs somewhere else down the supply chain, but a producer can't recoup costs from the dirt that it grows its food in. The buck stops with the grower and the farm family, and those are the ones who are being hit the hardest. Thankfully, the unscrupulous fee structure of megacompanies like Walmart has rightly driven attention to the need for a grocery code of conduct.

I just have a couple of quick questions to start off with, sir, and they're the same questions that I've asked the heads of the other companies—grocery giants—that have come here before committee.

Will you once and for all abolish all the fees, fines and chargebacks and pay farmers a fair price, the price that's on their invoice?

[Gonzalo Gebara]

Let me just start by saying that we engage with all of our suppliers in a very transparent and very clear way, and we are flexible, depending on the type of industry that our suppliers are engaged with. We also give reasonable notice to all of our suppliers related to the way we engage with them.

As you know, many of the fees that you just mentioned are related to the cost of doing business. Our business has evolved in many ways over the years, so we have evolved in the ways we have engaged with our customers by having these types of relationships. I would say that those fees normally go both ways, because our suppliers also have their own particular evolutions of their businesses, and we receive cost increases.

I think that we have a very transparent and very arm's-length relationship with them. In all cases, we are flexible, and we consider each of our particular situations with our suppliers based on a case-by-case basis.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you very much.

So the answer to my question was no.

My second question is this: Will you support and participate in the grocery code of conduct?

[Gonzalo Gebara]

I didn't say no to the question. I think that there's a need to continue to increase transparency, as I said—

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

I'm sorry. I don't have a lot of time here, but my question is this: Will you participate in the grocery code of conduct?

[Gonzalo Gebara]

Everything that brings transparency and that, ultimately, is in the best interests of all of the stakeholders, including our customers, we would support.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, sir.

My time is short here, but I'll take that as a no again.

Sir, I'm pro-business, but I've mentioned that other grocery giants are nickel-and-diming with the fees that are charged. Fees that are charged to suppliers by grocery giants, such as Walmart, amounted to over $6 billion for renovations to their stores, a cost normally paid for by reinvesting profits in a business, not by creating new fees and offloading the responsibility on suppliers, farmers and producers. In fact, Sylvain Charlebois called this “supply chain bullying”, and according to the Fruit and Vegetable Growers of Canada, 44% of producers are selling at a loss.

During the pandemic, Walmart announced that it would be charging its suppliers a new fee, not just an increase to the current fee structure. This was a new fee, and it was to be charged retroactively to pay for store upgrades, such as improving the online-ordering system infrastructure.

My question is this: Did you go ahead and implement this fee during the pandemic?

[Gonzalo Gebara]

During the pandemic, we updated the way we engaged with customers and we implemented a new fee, but we think that it was the right thing to do at the time, based on the evolution of our business.

Again, we do this in a very transparent way, and we consider each of the different situations on a case-by-case basis with every supplier. We think that, again, we have a very transparent way to engage with our supplier community.

[Lianne Rood, Conservative, Lambton—Kent—Middlesex, ON]

Most businesses, sir, reinvest their own profits in their business. They don't charge farmers and producers fees for the privilege of selling to them to reinvest in their business to run their own systems. A farmer is expected to pay for their own systems when they're doing business, so it seems really unreasonable. It's, quite frankly, shameful in this country that our big grocery chains charge what they do to our farmers and producers when it's not done anywhere else in the world. It just means that it's more expensive for consumers, and it puts Canadian jobs at risk.

With that fee that you said you implemented during COVID—and we only have about 40 seconds left, sir—were there any exemptions to who was charged this fee?

[Gonzalo Gebara]

What we did in the past with these fees was that we invited all of our suppliers to invest in the growth of their categories. As the business was changing and there were natural developments in the way our customers were choosing to buy, we thought that it was the right thing to do at the time.

[The Vice-Chair, Conservative, John Barlow]

Thanks, Mr. Gebara. I appreciate your finishing up in a timely fashion.

We'll now turn to the Liberals and Mr. Turnbull for six minutes, please.

[Ryan Turnbull, Liberal, Whitby, ON]

Thanks, Chair.

Thanks to Mr. Gebara for being here today.

Thank you for your testimony.

I appreciated your opening testimony, and I want to follow up.

In your Canadian subsidiary, you mentioned that Walmart has over 400 stores operating in Canada. I note that online we can see that Walmart Inc., the global company, is reporting a net income that has increased significantly over the course of the pandemic. I would note that, in January 2019, your net income was $6.6 billion. That went up in 2020 over the course of the year to $14.8 billion, and then it started to decline gradually over the next two or three years.

I see the trend, and I want to ask you about the net income across your Canadian stores. Could you quickly give us some of those figures so we can understand whether it follows the same trend line?

[Gonzalo Gebara]

As I said in my opening statement, our operating profit for the year last year declined compared to previous years. Our gross profit margin from the food business was lower than previous years.

When we look at Walmart's business globally, it's a business that operates in different markets with different dynamics and with different businesses. I can comment on the Canadian business. As I said, our profits were lower last year compared to previous years.

[Ryan Turnbull, Liberal, Whitby, ON]

You've said that your profits were lower on food items in your Canadian stores. Is that correct?

[Gonzalo Gebara]

We grew our sales on food items compared to previous years mostly as a result of the price inflation, which is the matter that we're discussing here, of course. Our gross margin on those sales was lower last year compared to the previous years. Our overall gross profit for the whole enterprise in Canada was lower, and—

[Ryan Turnbull, Liberal, Whitby, ON]

I'm sorry, Mr. Gebara. I don't mean to interrupt you, but I have very limited time. I'm looking for some short answers. I apologize.

When you say that your gross margins have decreased on food, are you comparing to prepandemic levels, or are you just comparing to the last year? We know that sales volumes have decreased a little bit. We can see the trend line from your net income, but I want to know this. From prepandemic levels, your food sales have gone up dramatically, and your gross margin would have gone up too. Would it not?

[Gonzalo Gebara]

No, in the case of our business, our sales went up during the pandemic because, as you know, we were counter-cyclical to other industries. Our sales grew, and last year our gross margin on those sales was lower than in previous years for the reasons I explained earlier on, this perfect storm around inflation and cost inflation.

[Ryan Turnbull, Liberal, Whitby, ON]

Great. In terms of the Competition Bureau, I know that, when other CEOs of major grocery chains came before this committee, they talked about voluntarily providing detailed financial information to the Competition Bureau. Have you done the same? Give just a short answer, please.

[Gonzalo Gebara]

Yes. We provided the relevant financial information to the bureau.

[Ryan Turnbull, Liberal, Whitby, ON]

Thank you.

I noted, in some media reports that I saw, that Walmart Canada has stopped doing price matching. I would note that among consumer prices across a large cross-section of products, when compared, Walmart did have the lowest prices in Canada, based on the information that I saw. That matches with your opening remarks, where you said that everyday low prices keep your prices low.

It's not true across every single product that your prices are the lowest. It's just that the average price on a basket of products is generally lower at Walmart by a certain margin. It's not that much lower, but....

I can't understand why you would not price match any longer. Can you explain how that decision was made?

[Gonzalo Gebara]

That decision, as you know, was made way before my time. However, I can tell you that we work every day to keep our prices low. Everyday low prices are at the centre of what we do. I am happy to hear from you, Mr. Turnbull, that you see those low prices on our shelves. We will continue to work to keep our prices low to offer the lowest prices to Canadians.

[Ryan Turnbull, Liberal, Whitby, ON]

I appreciate that, but it would be good to revisit price matching, because many customers can use that to ensure they get the lowest price. Would you consider implementing price matching again at your stores? It once was the case, right?