The Grocery Supply Code of Practice was established by the Groceries (Supply Chain Market Practices) Market Investigation Order 2009. This was largely in response to the Competition Commission’s investigation of supply chain practices between the major supermarkets and their grocery suppliers.
The Code stipulates a number of contract criteria that must be met in relation to contracts between the major retail multiples (listed in the Order) and their grocery suppliers. The Code covers a number of areas including obligations to ensure key contract terms are provided in writing, to limit retrospective changes and retrospective charges and to control and limit obligations to contribute to certain types of marketing and promotional costs and to make compensation payments for shrinkage and wastage.
There has been a certain level of scepticism as to the extent to which the Code will in reality impact on contractual relationships in particular where the supplier is heavily dependant on a continuing relationship with a particular retail multiple.
Initially the expectation was that the industry would agree voluntary arrangements for the adjudication of disputes arising in relation to the Code. That proved difficult. Accordingly a Bill has been introduced creating the role of the Groceries Code Adjudicator who is to be charged with the enforcement of the Groceries Code. That Bill is currently making its way through Parliament. Initially the proposed legislation provided that the adjudicator’s powers to impose financial penalties on supply chain parties who have disregarded the Code were to be subject to prior authorisation from the Secretary of State. This additional hurdle was seen by many as additional evidence that whilst the adjudicator might bark he was unlikely to bite. This position has, however, now changed. The adjudicator is to have an immediate power to impose fines on offending parties without seeking consent from elsewhere. The maximum amount of such fines remains to be established but it will be known within six months of the new bill becoming law.
This new proposed power to impose direct fines will be in addition to the adjudicator’s other powers; to make recommendations as to actions to be taken in relation to compliance with the Code and to publicise those who do not comply with the Code ie, to “name and shame” non-compliant companies.
On the basis that the level of fines will be material, it seems likely that the introduction of the adjudicator with these more draconian powers should give serious impetus to Code compliance and help to ensure active steps are taken to bring Code requirements into the supply chain terms, both by the major retailers and their grocery suppliers.
The Code at the moment applies to “groceries”, a term which is defined in some detail in the legislation. Should the implementation of the Code assist in removing supply chain abuses resulting from uneven bargaining power, it seems entirely possible that it could be extended to a broader range of products.