New code proposed for retailer-supplier deals

By Sarah Hills

- Last updated on GMT

Related tags: Supermarket, Ciaa

The rules that govern agreements between retailers and suppliers could be strengthened under a new proposal by the UK’s Competition Commission (CC) to protect manufacturers and others from restrictive practices.

The draft order, which is now out for consultation, would extend the Groceries Supply Code of Practice (GSCOP) and aims to ensure that suppliers do not have unfair or unexpected costs imposed on them by retailers.

The order is in response to the CC’s inquiry into UK groceries retailing last year, which concluded that measures were needed to address its concerns about relationships between retailers and their suppliers.

It comes just weeks after the CIAA, the EU food industry trade association, expressed concern over alleged abusive practices by retailers in their dealings with food manufacturers, who face direct competition from increased market share of retailers’ own private label products.

In a communication on food prices in December, the European Commission noted a number of ways in which retailers could act unfairly in their dealings with manufacturers. These include cartels, purchasing agreements between competing buyers, resale price maintenance, certification schemes, tying, and single branding.

The CIAA added other claims to the list, such as chronically late payments, long payment periods for suppliers, ‘forced’ discounts to meet buyers’ targets, and ‘forced’ contributions to finance mergers and acquisitions.

The new code will prohibit retrospective changes to terms and conditions, and limit the extent to which suppliers are required to pay for listings, promotions, inaccurate forecasts or customer complaints.

It will also set out a clear procedure for resolving disputes and the requirement for retailers to provide reasonable notice and commercial justification before a supplier is de-listed.

Commenting on the CC order, a CIAA spokesperson told FoodNavigator.com that it welcomed initiatives by the EC and member states that were aimed at ensuring the “well-functioning of the food supply chain”​ and examined how various actors in the food chain operate and address competition issues.

Peter Freeman, CC chairman and chairman of the Groceries Inquiry said the new code would be included in all retailers’ contracts with their suppliers and provide a much clearer framework.

He said: “We want to ensure that suppliers do not have costs imposed on them unexpectedly or unfairly by retailers.”

Freeman added that by extending to code to include other retailers, it would ensure more suppliers benefit from this protection.

Without this, he said: “The uncertainty and hardship caused by certain practices could significantly damage investment and innovation by suppliers and in turn, therefore, also harm consumers.”

A CC spokesman told FoodNavigator.com that the existing code only covered Tesco, Asda, Sainsbury’s and Morrisons. The new code would include all retailers with groceries turnover in excess of £1bn per year, which would mean about ten retailers in total.

He added there was a strong possibility the code could be in operation by the end of the year.

The CC will also consult establishing an Ombudsman to oversee and resolve disputes under the new code.

Tesco appeal

Meanwhile the CC’s recommendation for the inclusion of a ‘competition test’ in planning decisions on larger grocery stores to prevent their dominance in local areas has been successfully challenged by Tesco.

The appeal by the supermarket giant was upheld by the Competition Appeal Tribunal yesterday on the grounds that certain considerations about how the test would work and its costs and benefits should have been explored further in the report.

Related topics: Market Trends

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