The first formal investigation by the grocery industry watchdog has been launched following allegations by the Groceries Code Adjudicator that supermarket giant Tesco may have breached the Grocery Supply Code of Practice.

The Code is designed to regulate the relationship between supermarkets and their suppliers but since its introduction in 2009 has, in reality, had limited impact. However, that could be about to change with this investigation.

The investigation will focus on supposed delays to payments made to suppliers and also payments allegedly made by suppliers to secure better shelf positioning. The inquiry will focus on Tesco only at this stage.

At present, the adjudicator’s powers are limited to naming and shaming retailers and to recommending improved practices for the future. However, the Government has recently published plans to give the adjudicator the power to fine retailers up to 1% of their annual UK turnover.

This of course will be of concern to all the big retailers, not only in terms of the potential levels of penalty but particularly the adverse publicity. Indeed, given the changing retail landscape and the growing competitive threat from the discounters, the immediate adverse reputational harm of being caught in the adjudicator’s spotlight may be more of a deterrent than the risk of a fine.

The inquiry is likely to take around six months unless it is broadened, in which case it could take about nine months. We will continue to monitor and a further update will follow in due course.