Standing up to the supermarkets

A 2008 investigation into the way that supermarkets treat suppliers concluded that they were using their strong market power to the detriment of…

An investigation by the Competition Commission in 2008 into the way that supermarkets treat their suppliers concluded that the supermarkets were using their strong market power to the detriment of their suppliers. Examples of bullying tactics used by the supermarkets included:

  • demanding payments from suppliers for the “privilege” of having their products displayed on the supermarket shelves;
  • demanding payments for best shelf position;
  • charging retrospective rebates.

There was always the hidden threat of delisting of the supplier’s product if these demands were not met.

The Competition Commission decided that most, if not all, suppliers did not have enough power to protect themselves in their relationships with the supermarkets. To counter this, the government adopted a statutory code of practice, known as GSCOP, which regulates the dealings which the ten largest supermarkets, ranging from Tesco to Lidl, have with their suppliers. This code of practice contains an overarching duty upon those supermarkets to deal fairly and lawfully with their suppliers, requires them to pay their suppliers within a reasonable time, and puts strict restrictions on the supermarkets’ ability to seek payment from suppliers for, for example, stocking their products, promoting their products, positioning their products, resolving customer complaints and for wastages and shrinkages which arise after the products have been delivered to the store.

Further, any decision to delist a supplier must be for genuine commercial reasons and must not be as a result of a supplier’s attempt to get the supermarket to fulfil its obligations under the code.

An ombudsman known as the Groceries Code Adjudicator has been established to enforce the code, with the power recently being given to impose fines on errant supermarkets of up to 1% of their turnover. Despite the code coming into force in 2010, there have been very few reported decisions of the ombudsman in enforcing the code. Recent reports show that a culture of fear still pervades the industry, with many suppliers feeling that they are obliged to continue accepting the bullying conduct of supermarkets for fear of retribution, such as delisting.

How then can a supplier seek to take steps to enforce its rights against a supermarket under GSCOP while at the same time maintaining its good relationship with the supermarket, which is, after all, its route to getting its goods to consumers?

The ombudsman, Christine Tacon, has said that she will seek to protect the anonymity of any complainant, but the fear is that nevertheless a supermarket would be able to work out from where the complaint originated.

Rather than making complaints direct, suppliers have been using trade associations, such as the British Brands Group (“BBG”), to make representations to the ombudsman on behalf of their members so that the supermarkets are unable to identify individual suppliers who may have made the complaint. One such brought by the BBG concerned a “request” from Tesco that suppliers pay a fee of £30 per product, per store, for their products to be stocked on the two key shelves at eye level. That request was made in breach of GSCOP, and, following the intervention of the ombudsman, Tesco rescinded the request.

Each of the top ten supermarkets has to have a GSCOP compliance officer, who is independent of the supermarkets’ buying teams.

A threat made either by a supplier or through its lawyers to a buyer to escalate any dispute to the supermarket’s code compliance officer can frequently result in the dispute being settled in the supplier’s favour. The code compliance officer is required to make an annual report to the ombudsman on disputes which the supermarket has had with its suppliers concerning GSCOP, and, particularly in light of the new fining powers which the ombudsman has, the supermarkets will be keen to report to the ombudsman a culture of compliance with GSCOP.

Given the continued supermarket wars and the aggressive tactics of the discounters such as Aldi and Lidl to increase their market shares, financial pressures on the larger supermarkets continue to increase and they are likely to continue to want to squeeze every last drop of value out of their suppliers. These issues of bullying tactics by supermarkets are therefore unlikely to go away.

If you are interested in finding out more about this or any other competition-related issue, please contact Laurence Pritchard, a partner in the Corporate department on 0151 242 6963 or email laurence.pritchard@weightmans.com.

Read the article in The Guardian in which Laurence is quoted here.

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