Retail ombudsman will shift power relations in food supply

By Jess Halliday

- Last updated on GMT

Related tags: Price fixing, Supermarket, British retail consortium

UK plans to install a retail ombudsman to enforce a new code of conduct for retailer-supplier relations could shift the balance of power in the food supply chain back towards food manufacturers, says the BRC, which opposes the move.

The idea of a retail ombudsman has been under discussion for some time and was formally recommended to the UK government last August by the Competition Commission. The Commission asked the Department of Business, Innovation and Skills to act since it did not have the authority itself, and major retailers had refused to set one up of their own accord.

The new code of contact will come into practice on 4 February. It will be included in retailers’ contracts with suppliers, aims to ensure that suppliers do not have unfair or unexpected costs imposed on them by retailers, such as cartels, purchasing agreements between competing buyers, resale price maintenance, certification schemes, tying, and single branding.

Kevin Brennan, the consumer affairs minister, said a consultation will start next month on how the code should be enforced, and what powers the ombudsman should have.

The British Retail Consortium has reacted angrily to the decision, saying it will “hand negotiating power to multi-national food businesses and cost consumers millions of pounds in higher prices”.

However Melanie Leech, director general of the Food and Drink Federation, said smaller suppliers, with less negotiating clout, would benefit. The Food Ethics Council’s Tom MacMillan agreed. He said: “It has long been apparent that the power wielded by supermarkets needs to be regulated.

"The government must now ensure that it listens to small producers as well as big business while it consults on what shape an enforcement body should take.”

True costs?

The BRC also disputes the government’s reckoning that the only cost will be the £5m to be extracted from retailers to set up the watchdog. Stephen Robertson, director general of the BRC, said: “The UK grocery market is worth £130 billion a year. If threats of involving an ombudsman allow big food companies to squeeze even 0.1 per cent more out of supermarkets, that's £130 million extra on customers' bills.”

Not all in the retail space are against the move, however. John Drummond, chief executive of the Scottish Retail Federation, which represents convenience stores – which can also be impacted by big supermarkets’ power to drive prices down – said: “Without an independent Ombudsman, the new GSCOP, which comes into force in February, would have been ineffective”

“I hope this announcement will introduce a culture change within the major supermarkets and an acknowledgment that they must be open and transparent in their supplier dealings.”

Not just UK

The issue of fair dealings between retailers and their suppliers is not unique to the UK. Last year the CIAA, the EU food industry trade association, expressed concern over alleged abusive practices by retailers in their dealings with food manufacturers.

In a communication on food prices in December 2008, 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.

Related topics: Market Trends

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