Relationships between supermarkets and their suppliers have been in the spotlight.
In July of this year, the former CEO of Sainsbury’s, Justin King, warned that shoppers should prepare themselves for “higher prices, less choice and poorer quality” food and drink once the UK leaves the EU. As the prices of items such as Marmite, Weetabix, olive oil and Pernod have climbed, margins have been getting tighter and the dialogue between the largest supermarkets and suppliers is likely to become even more vigorous.
In the same month, the first ever statutory review of the Groceries Code Adjudicator was published.
Outline of the review
The Code was introduced with the clear aim of ensuring fairness across a range of supply chain practices. For example, the Adjudicator will take an interest if suppliers find that they are suffering from issues including:
- late payment
- variations to supply agreements without notice
- compensation payments for forecasting errors
- over-ordering at promotional prices
The full list of transgressions the Adjudicator has power to remedy can be found in the Groceries Supply Code of Practice.
Remedies available to the Adjudicator range from making recommendations, requiring information to be published or imposing financial penalties. There has been one enforcement over the review period when Tesco plc had to follow recommendations after it was found to have delayed payments to suppliers. The recommendations were to:
- pay suppliers on the terms agreed with them
- not make unilateral reductions
- promptly resolve any data input errors identified by suppliers
- provide transparency and clarity in dealings with suppliers
- train finance teams and buyers in the findings from the investigation
The review has examined the relationship between suppliers and the 10 main UK supermarkets. The review has been very positive: the Adjudicator has been effective in enforcing her powers and has attained internationally high standards. However, there remains some confusion as to the extent of her powers. For example, the Code does not extend to price setting, the relationship between indirect suppliers and supermarkets, food safety or labelling.
The review also found that the office risks being under-resourced. The Tesco examination absorbed 25% of the total office resource, 50% of the Adjudicator’s time alone and took a year from launch to publication. This should be a worry for suppliers. Such a disincentive could be overcome if suppliers report issues as they arise so that they can be dealt with more cost-effectively and quickly. The spotlight on resource is welcome for the next review.
The next review will begin in 2019. The area for most work will be to deal with the so called “climate of fear”, where suppliers fear that the supermarkets will treat them badly if a referral is made to the Adjudicator.
Advice for suppliers
In their dealings with supermarkets, suppliers should engage with their Code Compliance Officers throughout the process. Given the evidence based processes of the Adjudicator, good records should be kept. These extend not just to e-mails and written correspondence; notes of telephone calls and meetings should be maintained in order to provide the required transparency, should a report to the Adjudicator be required.
For more information from the Groceries Code Adjudicator please visit their website, click here.