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Hot topics for the Groceries Code Adjudicator

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05/08/2014

Background: the Adjudicator’s investigatory powers

The Groceries Code Adjudicator was formally established on 25 June 2013 with power, among other things, to investigate whether a “Designated Retailer” has breached the Groceries Supply Code of Conduct (the Code) and to take enforcement action by making recommendations; requiring information to be published or imposing financial penalties.

The Adjudicator may carry out an investigation if she has reasonable grounds to suspect a breach of the Code or a failure to follow a recommendation made, following a previous investigation. “Reasonable grounds for suspicion” may be based on evidence provided by suppliers, other retailers, trade associations or simply information already in the public domain. The Adjudicator’s investigatory powers include the right to demand delivery of information.

A year into the job and the Adjudicator is still waiting to have conferred the power to impose fines. However, we are starting to see indications of the sorts of issue that suppliers will be bringing to the Adjudicator and, moreover, an apparent readiness on the part of the suppliers to do so.

YouGov survey

First, a survey of grocery suppliers published in June by YouGov reported that 40 per cent of respondents claimed that their supply agreements or terms of supply had been retrospectively varied. The Code prohibits retrospective variations of supply agreements (unless the ability to make such variations is included as part of the trading arrangement from the outset). It also prohibits Designated Retailers from requiring significant changes to supply chain procedures without reasonable notice in writing or full compensation for costs incurred as a result of any failure to give such reasonable notice.

The survey findings also showed that 37 per cent of respondents had complained about unjustified charges for consumer complaints. The Code says that where a complaint is received in-store, the Designated Retailer must not require the supplier to make any payment for resolving such complaint, unless certain conditions are satisfied.

36 per cent of respondents reported an obligation to contribute to marketing costs. The Code says that a Designated Retailer may not require a supplier to contribute to its marketing costs.

On payments, 35 per cent of respondents reported a delay in payment. The Code’s stipulation is that payment must be made in accordance with the terms of the supply agreement and in any event within a reasonable time after presentation of the invoice.

All the issues identified above feature prominently in the Code and, as such, it is no great surprise that they also feature prominently in the YouGov survey. However, survey responses are one thing, actual complaints are another. What, then, are the complaints that the Adjudicator has dealt with so far?

The Adjudicator: cases so far

  • Morrisonshis was a complaint brought by a trade association about Morrisons’ new multi-channel initiative (i.e. move towards convenience and online sales channels). Morrisons requested an optional “multi-channel status” payment from suppliers and debited a number of suppliers’ trading accounts as part of implementing the new initiative without those suppliers having first agreed to participate. The Adjudicator held that the debits to the trading accounts breached the Code as a variation to terms of supply. Morrisons has reimbursed the amounts debited. The Adjudicator accepted Morrisons’ argument that the request for payment was not a requirement to pay a listing fee (i.e. the fee did not have to be paid for a product to be part of the multi-channel initiative).
  • Tesco The Adjudicator sought an explanation of the practice of asking suppliers to pay for eye-level display. Tesco assured the Adjudicator that its buyers had been reminded that the Code does not permit payments to be requested in this way and that all suppliers affected had been contacted to rescind the request which was made in error. The Adjudicator emphasised that requesting payment for shelf positioning was contrary to the spirit, if not the letter of the Code. It was a request that effectively amounted to a requirement as the supplier would infer that it would suffer a detriment if it did not agree.
  • Co-op – This concerned a complaint that the Co-op had demanded compensation payments for loss of profit arising from a service level breach. There was, in fact, no evidence of any service level breach. The Co-op identified this as an isolated request and withdrew the request for payment.

Agreement regarding forensic audits

On 24 June this year, the Adjudicator reported that agreement had been reached with eight Designated Retailers by which the retailers undertook to time limit forensic audits, the process by which accounts and records are subject to rigorous analysis in order to identify any money that may be owed to retailers. The audits can go back six years. The eight retailers in question have agreed to limit their search for missed claims in suppliers’ trading accounts to the current and previous two financial years. This will be met with a reciprocal commitment from suppliers. This commitment from the retailers will be welcomed by suppliers as the resource implications of responding to claims from the retailers can be significant, particularly where relevant staff have moved on.

The issues identified in the Adjudicator’s annual report

This announcement was made simultaneously with publication of the Adjudicator’s first annual report which identified the issues that suppliers have been raising with the Adjudicator. In addition to forensic audits, these are:

  • drop and drive, where there are discrepancies between what suppliers say they have delivered and what the retailers say has been received;
  • forecasting/service levels;
  • requests for lump sum payments; and
  • packaging and design charges.

With forensic audits apparently sorted out for the time being, we are likely to see the other four issues at the top of the Adjudicator’s agenda. If one takes into account the responses to the YouGov survey and also the findings that the Adjudicator has made in the last 12 months, as documented in this briefing, it is clear that the Adjudicator is going to be very busy investigating supplier complaints.

If you would like to discuss any of the issues raised in this briefing, including how to approach the Adjudicator with a complaint, or how to respond to a request for information from the Adjudicator in a way which will not impair commercial relationships, please do not hesitate to contact the writers, or your usual contact in the Walker Morris Food and Drink Group.

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