The prospect of further scrutiny of certain category management practices has come one step closer. The issue was raised in the Groceries Code Adjudicator's (GCA) recent Tesco report and the GCA has now confirmed that the anticipated consultation will be launched on 27 June. The Competition and Markets Authority (CMA), on the other hand, has apparently declined to become involved in this further enquiry.
The GCA final report following the Tesco investigation highlighted that some large consumer goods suppliers are making sometimes very substantial payments to grocery retailers in return for "category captaincy" status. The GCA expressed the concern that smaller suppliers, who are less likely to have the resources required to fulfil a category captaincy role, might be deprived of the “significant financial benefits” that appear to flow from that status. In light of uncertainty about whether such payments could be said to contravene the Code, the GCA indicated her intention to launch a further consultation, covering this and other potential indirect breaches.
However, the GCA also indicated her intention to refer such category captaincy payments to the CMA for further consideration. As we explained in a previous article on the subject, the referral raised the prospect of a further review of the competition law risks associated with category management practices. Such a review would be unwelcome to many in the consumer goods sector, not least because category management practices have been considered by UK competition authorities in two previous market-wide inquiries.
Recent comments by the GCA have dampened expectations of further CMA intervention in this regard. Speaking at theWestminster Food and Nutrition Forum on 27 April, the GCA indicated that the CMA had made clear its expectation that she should work within the scope of the Code as currently drafted. More recently, The Grocer magazine reported the GCA saying that she would have liked to have worked with the CMA to clarify the position with regard to category captaincy payments, but that the CMA "didn't want to get involved".
The GCA will nonetheless continue her own consultation, which will be launched at her annual conference on 27 June. The likely focus will be potential indirect breaches of the Code prohibition on retailers requiring suppliers to make payments in order to secure better positioning or an increase in the allocation of shelf space. For example, the consultation may consider whether category captaincy payments could amount to an indirect breach of that prohibition, on the basis that the supplier could secure, in return for its payment, a greater influence over shelf positioning and layout. In addition, the consultation is likely to focus on the situation where a retailer requests an investment payment from a supplier. Suppliers typically propose a package of commitments which the retailer might agree to in return for such investment payments, and the supplier might proactively propose a shelf space or allocation commitment as part of that package. The GCA has acknowledged that many grocery suppliers have no objection to shelf space or allocation commitments being agreed in that context, and so the precise contents of the consultation should be interesting.
Related news: Spread of Grocery Code-style regulation internationally
Regulators and governments in many overseas jurisdictions have closely followed the success of the UK Groceries Code which has resulted in similar regimes being established, for example in Ireland and Australia.
Earlier this month the European Parliament again considered long-standing concerns about unfair trading practices in the food supply chain, noting that mainstream competition law is often insufficient to tackle those perceived market failings. A motion passed by the Parliament invites the Commission to implement appropriate enforcement mechanisms, and "emphasises, in this context, the UK Groceries Code Adjudicator as a possible model to follow at EU level, which could create a real deterrent against unfair trading practices and help to eliminate the ‘fear factor’".