Food suppliers not using voluntary code
supermarkets are observing an industry code of practice but that
suppliers are not making use of it.
In a release today of a report on the country's Supermarkets Code of Practice, the Office of Fair Trading (OFT) concluded that it should remain unchanged but could be used more effectively bysupermarkets and suppliers.
The investigation was conducted to ensure that the major supermarkets are not using their market power unfairly against their suppliers. The code has been especially important to food processors ina market characterised by fierce price competition and lower margins.
The OFT also conclusively rules out the creation of an ombudsman or regulator for the industry. In a consultation process that ended in May only 29 suppliers made submissions to the consumer body,many of them calling for changes outside of the OFT's responsibility. An audit of the code's effectiveness was carried out by PKF, an accounting and consulting firm.
"Suppliers and their representatives continue to complain that the code's lack of prescriptiveness and suppliers' fear of complaining combine to make the code ineffective," theOFT stated in its report. "However, PKF's audit indicated that the supermarkets were, by and large, complying with the Code and no-one has provided evidence to counter this assertion."
The voluntary code covers Tesco, Asda, Sainsbury's and Safeway/Morrison, who hold about 80 per cent of market share. An investigation by the Competition Commission in 2000 found more than 30exploitative practices directed by supermarkets at their suppliers.
Afterwards the code, amended by the supermarkets who signed undertakings to follow the rules, was put in place.
"Since the publication of the Competition Commission's 2000 report, consumers have benefited from competition in grocery retailing which has secured lower food prices overall and a greaterchoice of product lines in supermarkets with no evidence of reduction in the quality of the produce available.
The OFT last year quizzed suppliers, trade associations and the four supermarkets about how well the code was working. About 80 per cent of respondents said that it had failed to bring about anychange in supermarket behaviour.
"The code is not meant to shield suppliers from hard bargains driven by supermarkets, and most importantly, consumers are benefiting from competition in grocery retailing," the OFTstated in the new report.
The OFT recommends that supermarkets be more transparency in their terms of dealing with suppliers when negotiating prices, volumes, discounts, overriders and promotions.
"Supermarkets have assured us that these core terms are available in writing," the OFT stated. "However, there is a perception gap between the availability of informationand how some suppliers feel about accessing that information."
The OFT noted that the UK's smaller retailers have faced increased competitive pressure as the large supermarkets have diversified into convenience retailing and increased their market shares.
"It is not for the competition authorities to deny any players in a market opportunities for organic growth where they arise out of a perceived need and ability to meet consumer demand,"the OFT stated.
In a statement the British Retail Consortium (BRC) said the OFT report confirms its members are in compliance.
"The OFT's findings confirm what the BRC has said all along - that supermarkets are observing the code but suppliers are not making use of it," said the organisation's director general,Kevin Hawkins.
