Maple Leaf among suppliers introducing fuel surcharges set to put pressure on grocery prices

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Food suppliers are beginning to charge retailers across Canada extra fees to offset the soaring cost of fuel, a move that will put pressure on grocery prices.

Maple Leaf Foods MFI-T and Tree of Life are among the food suppliers and distributors that have already sent fuel-related charges to wholesale distributors and grocery retailers, according to interviews and documents seen by The Globe and Mail.

Maple Leaf’s new fee adds as much as $2,200 in additional costs per 20,000-kilogram tractor-trailer of food, according to an industry source. The Globe is not identifying the source, out of concern for professional consequences.

In a March 31 letter seen by The Globe, Josh Kuehnbaum, Maple Leaf Foods senior vice-president of sales and customer business development, told partners that the Canadian food giant was introducing a “temporary fuel surcharge” of $0.11 a kilogram on its prepared meats and poultry shipments.

Effective this Monday, the temporary surcharge is being implemented in response to rising transportation costs tied to global energy market disruptions, the letter said.

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Maple Leaf Foods reported $3.9-billion in sales last year. Its prepared foods and fresh meats are found in 92 per cent of households across the country, according to an investor presentation last month.

“This is not a permanent price increase, but rather a temporary adjustment tied directly to fuel cost movements,” Mr. Kuehnbaum‘s letter said, adding that the surcharge may “move up or down in line with fuel prices.”

Maple Leaf spokesperson Victoria Berry confirmed that the letter from Mr. Kuehnbaum went out to customers in the same timeframe. The company estimated that the surcharge amounts to about four cents a product.

Tree of Life is the Canadian operation of a U.S. distributor of natural, specialty and organic food products. Two sources, whom The Globe is not identifying out of concern for professional consequences, said they both received notice of a fuel-related surcharge from the company.

Tree of Life did not respond to requests for comment.

Consumers and businesses have been feeling the blowback from rising oil prices ever since the United States and Israel’s war with Iran began in February, with little reprieve after a fragile peace deal was brokered this week.

Not all suppliers and manufacturers have moved to charge food retailers additional fuel fees. Olymel, a major Canadian pork, chicken and turkey processor and competitor of Maple Leaf, is still assessing the situation, said company spokesperson Stéphanie Couturier.

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The company said it is watching prices closely but has not yet determined how a surcharge would be implemented or which products would be affected.

A fuel surcharge is a structured price adjustment designed to isolate the portion of a price increase that can be directly attributed to higher fuel and transportation costs, according to Matt MacDonald, leader of the food and beverage processing practice at MNP.

For example, when fuel prices increase, organizations may apply a surcharge to recover these incremental expenses, “essentially providing greater transparency around the drivers of the overall price change,” Mr. MacDonald said.

Retailers say they‘re bracing for more such charges, and some worry that the impact across Canada and the grocery industry will be uneven.

Fuel surcharges disproportionately negatively affect small grocers and small distributors “because it’s a volume discussion,” said Giancarlo Trimarchi, president at Vince’s Market, which operates four grocery locations in Southern Ontario.

Mr. Trimarchi said a common joke in his industry is that “volume cures all ills,” adding, “The larger your sales, the larger your ability to absorb certain costs.”

Some smaller, independent grocers say they have received multiple fuel-surcharge notices from their suppliers in the past couple of weeks.

The first source who spoke with The Globe said while they’ve received multiple surcharge notices, Maple Leaf’s was particularly significant. A typical tractor-trailer of meat would cost an additional $2,200 extra a shipment, or about $85 a pallet, the source said.

That adds up to thousands a week in additional costs for their business, the source said. Since the surcharge is weight-based, heavier, lower-valued canned meat products see a significantly higher percentage increase compared with lighter, higher-value items such as packaged lunch meats.

All of those suppliers blame the increased costs for transportation, and cite the need to offset higher delivery expenses, grocers say.

“They all say this is a stopgap, or temporary item,” said Gordon Dean, who owns the Mike Dean Local Grocer chain of stores in Ontario and Quebec.

Those across the industry say that such moves will mean rising costs for shoppers. “I run five little grocery stores; if I clear 1.5 per cent net profit, that would be a great year,” Mr. Dean said. “There is no excess margin we can absorb.”

Some independents are also concerned that, because of their scale and the leverage they hold with suppliers, bigger grocers may be avoiding such surcharges.

“I’ve responded to each of them saying, ‘No, we’re not accepting this, unless the big five [grocers] are also paying these charges,’” Mr. Dean said. But he said he knows the pushback will not be effective; if he continues to refuse the surcharges, suppliers will stop shipments.

Some major retailers appear to be pushing back. In an e-mailed statement to The Globe on Thursday, a spokesperson for Sobeys parent Empire Co. Ltd. wrote that the grocer had received one request for a surcharge from a supplier, and Empire declined it.

“Similar to our approach to tariffs at this time last year, we believe the fuel market is too unpredictable to take any decisions that could adversely impact the value we provide to our customers,” the spokesperson, Karen White-Boswell, wrote. She did not name the supplier.

In a response to an e-mail about the Maple Leaf increase, Loblaw Cos. Ltd. spokesperson Scott Bonikowsky declined to comment on any specific commercial arrangements the retailer has with its suppliers.

He added that “generally speaking we have not yet seen requests from suppliers for fuel surcharges.”

Metro Inc. spokesperson Marie-Claude Bacon confirmed that the grocer had received Maple Leaf’s notice, but no other such notices from other suppliers.

“I can confirm that there are discussions around the impact of fuel price increase with our suppliers, but no official price changes received so far,” she wrote in an e-mail Thursday.

Spokespeople for Walmart Canada and Costco Canada did not respond to requests for comment.

As transportation costs rise, companies have to consider how to recoup those additional expenses. “Grocery retailers operate on margins of just 3 to 4 per cent, so there’s limited room to absorb these increases,” said Kim Furlong, president and chief executive officer of the Retail Council of Canada. “If manufacturers begin imposing surcharges, those costs will ultimately flow through to consumers.”

For consumers, not all food prices will be affected equally by these changes. Products such as fresh fruits and vegetables that are heavy, perishable, minimally processed or require refrigeration are much more sensitive to fuel price increases, said food economics professor Michael von Massow at the University of Guelph.

“Processed food will be relatively cheaper,” he said.