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  • Overview

    The Groceries Code Adjudicator (the GCA) has released the results of its latest survey into retailer compliance with the Groceries Supply Code of Practice (the Code).

     

     

    Interestingly, the results show a downward trend in the number of suppliers reporting breaches of the Code. Although this has been heralded as a positive indication of compliance by retailers, the results confirm that many suppliers continue to have concerns about the commercial consequences of complaining.

    The survey also highlighted a worrying lack of training amongst suppliers about their rights under the Code. A general lack of knowledge, coupled with the perceived risk of retailer sanctions, could well be contributory factors in the declining number of complaints over the past year.

    A separate annual report published by the GCA has highlighted the type of issues that have been raised by suppliers under the Code. The GCA has categorised these under five broad headings, which it intends to focus its attention on over the next year, in an effort to further improve compliance with the Code by retailers.

    Background

    The Code was introduced in 2010, after an investigation by the Competition Commission found that some large retailers were unfairly burdening suppliers with additional risk and costs, which could, ultimately, disadvantage consumers.

    The Code seeks to redress the balance of power by requiring the ten main grocery retailers to deal with suppliers in a way which is not just lawful, but fair.

    After delays in the implementation of a system for enforcing the Code by the retailers, the GCA was established in 2013 for that purpose.

    One of the GCA’s main functions is to arbitrate disputes between suppliers and the retailers (at the request of either). It has the power to award compensation and its decisions are binding.

    The GCA can also conduct investigations into alleged noncompliance with the Code, which can result in the GCA making recommendations. It can also require retailers found wanting to publish details of any breach and in the most serious cases, the GCA now has power to impose fines up to a maximum level of 1% of the relevant retailer’s UK turnover.

    Survey results

    On 22 June 2015, the GCA released the results of the second survey, which shows a drop in the number of suppliers reporting Code-related issues in their dealings with the ten large retailers from 79% in 2014, to 70% in 2015.

    A larger proportion of suppliers (47%) would also consider raising issues with the GCA. However, concerns about retribution were cited as one of the reasons for suppliers deciding not to complain.

    Commenting on the results of the survey in the GCA’s News Release, the Adjudicator, Christine Tacon, stated:

     “We still have some way to go in important areas but this is a clear sign we are on the right track. Suppliers are more aware of the GCA and its work and fewer now believe the GCA will not be able to do anything if they bring an issue to me”.

    Ms Tacon also noted, however, that the survey revealed a low number of suppliers had received training in the Code – overall 29%, with only 9% of the smallest suppliers being trained.

    She said that “Retailer buyers are well-trained in the Code, so for a supplier to challenge a request or requirement as non-Code compliant, they need to know their rights”.

    The GCA’s Annual Report for 2014/15

    The GCA’s 2014/15 Annual Report sets out the type of issues that have been raised by suppliers and it has distilled those issues into five key areas:

    • Forecasting and service levels. Suppliers are still concerned about the poor accuracy of some retailers’ forecasts, and the significant difference between forecasts made and orders placed. Linked to this, suppliers reported that some large retailers were applying penalties for failure to meet prescribed service levels, where inaccurate forecasts had been provided.
    • Requests for lump sum payments. The complaints centre around demands for lump sum payments by some retailers, to help retailers maintain their margins, particularly at the end of a financial year.
    • Packaging and design charges. The GCA has received complaints about unreasonable charges being applied for photography and packaging designs, as well as for repeated changes to packaging design at the instigation of the retailer.
    • Consumer complaints. Suppliers allege that some retailers are overcharging for dealing with consumer complaints and using them to generate profit. They have also reported frustration about the different ways in which the retailers deal with consumer complaints. 
    • Delays in payment. Issues relating to delays in payment, deductions, the imposition of fees and charges and unfairly disputed invoices were all raised by suppliers as points of particular concern.

    The future

    The GCA considers that the practices identified by suppliers in its annual report could constitute potential breaches of the Code. To gain a better understanding, it has written to all retailers asking them for details and information about the issues raised, before deciding what, if any, further action may be merited.

    As noted above, the GCA has the power to investigate, make recommendations and to impose fines, and no doubt suppliers and their trade associations will keeping an eye on developments, to see whether the results of its enquiries results in any formal action.

    In the meantime, suppliers of all sizes should ensure that their staff are adequately trained in the Code, to address the knowledge gap, and potential imbalance of power between them and the retailers. The GCA is encouraging trade associations to play a more proactive role in providing suitable training. This should also help to give those associations a better insight into the code related issues faced by suppliers, and in turn, to help them raise noncompliant practices with the GCA.

    If you would like to further discuss any of the above please contact partner Douglas Skilton from our Dispute Resolution team.

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