What's in store?
The way in which large supermarket chains deal with their suppliers has been the subject of much angst and discussion in the EU. This has generally focused on the buyer power enjoyed by supermarket chains which means that suppliers bear the business risk associated with e.g. imperfect fruit and vegetables (automatically rejected).
In the UK, there have been multiple investigations by the competition authorities into the supermarket/grocery sector and, in 2006, the Competition Commission expressed concerns that retailers were transferring excessive risks onto their suppliers. The Groceries (Supply Chain Practices) Market Investigation Order was introduced to address these concerns. It requires "Designated Retailers" (i.e. the top 10 supermarkets, each with a UK turnover exceeding £1bn) to follow certain compliance measures and to incorporate the Groceries Supply Code of Practice (GSCOP) - which came into force in 2010 - into their supply arrangements.
GSCOP is intended to promote fairness in the way that Designated Retailers deal with their suppliers and requires the Retailers:
- to ensure T&Cs are in writing
- to provide reasonable notice before changing supply chain practices
- to pay for goods promptly
- to compensate for forecasting errors, unless the supply agreement says otherwise
- to give reasonable notice of a decision (which must be based on genuine commercial reasons) to de-list
- not to retrospectively vary agreements or require payments towards marketing or wastage costs (unless the agreement says otherwise)
- not to require compensation for stock shrinkage
- not to require payments for shelf space or for resolving customer complaints, except in certain circumstances
- not to require funding towards over half the costs of a promotion
If a Designated Retailer fails to comply with GSCOP, a supplier can complain to the Groceries Adjudicator (a post currently held by Christine Tacon). The Adjudicator has powers to investigate, make recommendations, require information to be published (e.g. in a press release or annual report) and impose fines of up to 1% of the Designated Retailer's UK turnover. An Order permitting the Adjudicator to apply the financial penalty is expected to be in force by spring 2014.
The grocery 'fair trading' regime reflects a trend towards sector specific fair trading rules being introduced to overlay general competition rules: for example, a sector specific 'fairness' adjudicator is also planned for the beer and pub trade. The trend suggests that politicians are no longer convinced that competition (and competition law) offers the best or even a sufficient means of serving consumers' interests (and voters' demands).
If you would like to discuss these issues, please do not hesiate to contact us.