Are Retailers following the Rules – Delisting & GSCOP?
A recent survey undertaken by the outgoing Groceries Code Adjudicator shows that “retailer compliance with the Groceries Supply Code of Practice is at an all time high”.
Unfortunately, whilst the survey may show that retailer compliance is at an all time high, we are seeing an all too familiar trend in relation to delisting. That is, retailers are still delisting suppliers without prior warning and without adequate notice. The delisting guidance provided by the GCA is clear on these issues. However, we have seen instances of retailers remaining “trigger happy”.
From the cases we have seen, it is the exception not the norm that the retailer discusses matters with the supplier in advance and it is rare that we see adequate consideration being given to the relevant factors highlighted by the GCA when considering what a reasonable period of notice would be. It may be that as lawyers, we are only seeing the thin end of the crust, but there is no doubt that that thin end demonstrates an ongoing lack of compliance (¿or understanding?) by retailers.
In our view the review process set out in the Code following a delisting is not fit for purpose. Senior buyers almost inevitably support their buyer’s decisions and Code Compliance Offers appear impotent, or not willing to overrule their superiors, when it comes to reviewing decisions. We have not seen a single instance of a Code Compliance Officer even challenging the decision made notwithstanding what we regard as obvious failures to follow the Code. They all too often simply reiterate the reasons given by the buyer in the first instance.
The basis upon which the Groceries Supply Code of Practice was put in place was to stop retailers transferring excessive risk and excessive costs onto suppliers. The Competition Commission noted from the outset that suppliers cannot innovate if they are expected to bear the risks and costs of the retailer-supplier relationship. Therefore they concluded, suppliers cannot grow without innovation and that is harmful to competition. The delisting guidance sticks very closely to that theme. Retailers should give adequate notice, they should discuss their intentions in advance, they should have genuine commercial reasons for terminating. Suppliers should know where they stand and have time to adapt in the event of a delisting.
Whilst things have improved, it seems that retailers still see themselves as the more powerful of the two parties in a delisting situation. For as long as that persists in the relationship with suppliers, delisting will remain challenging for suppliers which fuels the very concerns highlighted by the Competition Commission.
One change we would like to see the new Adjudicator take is to raise the bar as to what are “genuine commercial reasons”. The previous Adjudicator, Christine Tacon said it was a low bar. Retailers know that all too well.
In our view, “genuine commercial reasons” should be precisely that, not faux tenders, or payments by competitors. That is not a genuine commercial reason nor a reason why a supplier should be terminated. Suppliers must be treated fairly. The risks and costs of the relationship must not be pushed on to suppliers. Allowing retailers a low bar to steam through is contrary, in our view, to the wishes of the Competition Commission.
To be clear, we think it is perfectly reasonable for retailers to terminate relationships but they must do so in compliance with the clear meaning and spirit of the Code. Suppliers should not be terminated without warning and then without adequate notice and the sanctions for doing so must be clearer.
What would be welcome from the GCA is clear guidance on what genuine commercial reasons are, a requirement to set those out and provide proper evidence support, and for suppliers to have the right to refer the decision to delist to an independent third party, not employees of the retailer (the Senior Buyer and Code Compliance Officer) who has delisted them.
We trust that with the appointment of Mark White as the new Groceries Code Adjudicator, he will view this issue as a priority and ensure that suppliers are treated fairly and reasonably in the event that a delisting is required. Where suppliers are treated unlawfully, we trust that Mr White will take the appropriate steps without the need for Arbitration.