Whilst 2016 saw the Grocery Code Adjudicator (‘GCA’) conclude her first investigation under the Groceries Supply Code of Practice (GSCOP) the GCA has continued her active regulation of the grocery sector and has had a busy start to 2017. She has published a response to the “payments for positioning” consultation, issued further best practice statements and has recently asked suppliers to respond to the annual survey on current market issues. In the meantime the Government is currently conducting a review of the GCA’s role and performance, and has sought views on whether to extend the GCA’s remit. We consider each below.
“Payments for Positioning” Consultation
Grocery retailers regulated by the Code are prevented by paragraph 12 of the Code from directly or indirectly requiring payments from suppliers in exchange for better shelf positioning or a greater allocation of shelf space unless in relation to a promotion.. The Code also restricts payment in exchange for opportunities to influence on-shelf positioning by providing category management services or participating in range reviews. The GCA launched a consultation to assess the extent of compliance with paragraph 12 of the Code.
The consultation did not prompt a significant response with only 15 suppliers and one trade body participating (in addition to the retailers, and a small number of individuals) and the GCA noted that as a consequence there was not enough evidence provided to issue guidance or any regulatory intervention. Based on the evidence received, the GCA found that payments for positioning did not seem to be widespread. The GCA took the opportunity to describe the practices that exist in this space and indicate where such practices are and are not likely to be compliant with the Code. In particular:
The GCA considered whether there was evidence of indirect payments being required for positioning, such as voluntary ‘investment’ or ‘marketing’ payments to retailers in exchange for shelf space. The responses did not support this, but the GCA found that suppliers sometimes make payments or offer “investment” to retailers which the supplier can then use as leverage to negotiate better shelf space/positioning or other concessions. The GCA clarified that these practices are acceptable provided that such conversations demonstrably take place as part of genuine commercial negotiations if they are to comply with paragraph 12 of the Code.
The GCA highlighted that any direct or indirect requirement from retailers to make a payment in order to participate in category management and which results in better shelf positioning would be considered a breach of paragraph 12 of the Code. Category managers may provide non-financial benefits to retailers, such as seconded staff or access to suppliers’ market data without raising issues under the Code. However, it would be prudent for retailers who do engage suppliers in category management to set out a clear policy concerning their engagement with suppliers which explains how other suppliers may contribute or challenge any decisions.
The GCA did not find any evidence that suppliers are being required to make payments in order to participate in range reviews. There was anecdotal evidence of suppliers renegotiating pricing terms when under threat of being delisted. However, the GCA did not identify this as a breach of the Code. She did note that retailers may want to consider having a policy concerning supplier involvement in range reviews in the future.
Best practice statements
A successful feature of the GCA’s approach to regulating the sector has been to maintain an ongoing list of issues which have come to her attention, referred by her as the “top five” issues. As a result of this work, the GCA has recently issued best practice statements on forecasting and consumer complaints. In both of these she found that all 10 retailers were compliant with the Code in relation to forecasting and consumer complaints. However, she noted that retailers should work harder to ensure that their approach is transparent and that they provide suppliers with all the relevant information. Specifically she recommended the following in relation to consumer complaints:
ensuring suppliers understand the rationale behind any charges incurred as a result of consumer complaints;
providing suppliers with detailed complaint information as soon as possible; and
ensuring as many complaints as possible are dealt with in-store to minimise costs to suppliers.
The GCA also made the following recommendations to retailers in regard to forecasting:
retailers should collaborate with suppliers to ensure that forecasts are accurate and suppliers have the opportunity to raise any challenges;
retailers should regularly review forecast performance to maximise accuracy;
retailers should ensure suppliers understand the information retailers use for forecasting purposes; and
the risks and costs of fluctuations in supply and demand should be shared between the retailer and supplier in a fair way.
The role of GCA was originally created in 2013 under the Groceries Code Adjudicator Act 2013. Section 15 of the Act requires the government to periodically review the performance of the GCA. The first review falls this year. The purpose of the review is to evaluate the current system, the adjudicator’s performance and address any weaknesses.
Alongside the review, the government has also issued a call for evidence in relation to the GCA’s remit. The GCA’s remit currently only covers the 10 “designated retailers” and their direct suppliers. This is because GSCOP and the adjudicator’s role developed out of the 2008 Competition Commission grocery market investigation. This means that other retailers that have entered the market since 2008, such as digital retailers, are not governed by the Code. In addition there have been calls from farmers and ingredient suppliers who supply manufacturers to extend the Code to cover their relationship with manufacturers. Whilst there are no specific government proposals, the government acknowledges in its call for evidence concerns which have been expressed that the limitation in the GCA’s remit is unfair. If the GCA’s remit were to be increased, this would mark a significant expansion of the GCA’s role.
The results of the government’s review are not due out until the middle of 2017.
The GCA has asked suppliers to participate in her fourth annual survey of industry issues. The survey is important as the GCA has no power to investigate on her own initiative; she can only investigate issues that are brought to her attention and the survey is an important way for suppliers to do this. This means if suppliers do not raise issues through the survey or other means then these cannot be investigated and addressed. All responses are anonymous and confidential. There are still a couple of days left to respond to the survey as responses are sought before 17 April 2017.