Code breaker  

A statutory Grocery Code of Conduct has proved a long time coming, with groups such as Food and Drink Industry Ireland (FDII) first working on a code as far back as 2006. But now that the Grocery Goods regulations finally look set to come into force later this year, what will this actually mean for players within the grocery supply chain? Gillian Hamill reports

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12 March 2015 | 0

AT A GLANCE: Areas covered by Grocery Goods draft regulations

  • Requirement for grocery goods contracts to be in writing
  • Requirement for good faith, transparency, openness and fairness in grocery goods dealings
  • Restrictions on unilateral changes to grocery goods contracts
  • Restrictions on payment for shelf space, marketing costs, advertising costs, wastage, shrinkage
  • Requirement for records to be retained for inspection and regular compliance statements to be made

“A watchdog with real teeth” is what the creation of the Competition and Consumer Protection Commission (CCPC) has delivered, according to Minister Richard Bruton. The potential power to bite into dominant players, also seems to be the key consideration at stake with regards to his draft Grocery Goods regulations. The Minister published these for consultation in December, and asked for submissions from interested parties by 27 February. He claimed that measures contained in the draft regulations (see panel opposite) “together with strong enforcement powers will ensure that relationships [between suppliers and retailers] are fair and sustainable.”

Extent of enforcement powers

Just how strong exactly these enforcement powers will be, appears to be a chief concern for stakeholders. Shane Dempsey, head of Prepared Consumer Foods, at Food and Drink Industry Ireland (FDII) believes “the key to unlocking the consumer benefit of these regulations is effective enforcement”. Dempsey told ShelfLife: “FDII welcomes the government’s commitment to introduce regulation to stop large retailers’ damaging trading practices and abuses of buying power. If these regulations are enforced, it should ensure that suppliers no longer will have to deal with arbitrary financial demands from larger retailers. Suppliers will get paid in full and on time and will be better able to invest in their businesses and product innovations. This will ultimately benefit the consumer. In addition, retailers will have to compete on the basis of delivering value to the consumer solely as unfair demands placed on suppliers are no longer allowed.”

Commenting on the importance of effective enforcement powers, Dempsey added: “FDII has requested that the CCPC puts in place sufficient resources and begins investigations into practices in the sector immediately. FDII has requested regulations of this sort in the grocery sector since the abolition of the Groceries Order. In this time, many food companies have gone under and many jobs have been lost – partially due to the negative impact of abuses of buying power. That’s why we need these regulations put in place as soon as possible. At the moment, demands are still being placed on suppliers that would be banned under these regulations – let’s not risk any more food sector jobs by delaying their introduction.”

Shane Dempsey, head of Prepared Consumer Foods, FDII says: “FDII has requested that the CCPC puts in place sufficient resources and begins investigations into practices in the sector immediately”

Shane Dempsey, head of Prepared Consumer Foods, FDII says: “FDII has requested that the CCPC puts in place sufficient resources and begins investigations into practices in the sector immediately”

Not going far enough for farmers

The Irish Farmers Association (IFA) has also said that it believes the efficacy of the draft regulations will ultimately hinge on how well they are enforced. In its submission, the farmers’ representative group said: “IFA believes that the 2014 legislation will be judged on the effectiveness of implementation of the regulations, which must result in a rebalancing of power in the food supply chain. It is critical that the CCPC take a proactive role in initiating investigations, ensuring compliance with and penalising breaches of the regulations.”

However while the IFA wants to see Minister Bruton’s draft regulations properly enforced, the organisation has also said it doesn’t believe they go far enough in stemming the current problems that exist within the grocery sector.

According to the association: “The legislation does not address a number of issues that the IFA has identified as necessary to restore equity to the food supply chain and curb the dominance of the retail multiples.” These issues include the failure to include a prohibition on below cost selling in the legislation; no limits on the use of own-brands by retailers; no provision for ‘retention of title’ for goods delivered until such time as they are paid for; no provision for large retailer multiples to disclose profits; and a failure to address the erosion of production prices, resulting from the use of tendering rather than contract negotiation for the supply of certain produce.  The IFA concluded that the government “needs to tackle these issues through further legislation and regulation”.

Implications for retailers

An opinion piece printed in The Irish Times last year directly after Minister Bruton’s publication of the CCPC Bill, chimes with the IFA’s line of reasoning. “The lack of complaint yesterday from the big retailers, who have lobbied intensively against a far-reaching code the industry would have to sign up to, is telling,” it stated. “They clearly do not fear any of the provisions in the latest legislation. The retailers’ approach for years has been to drag the issue out and hope the sting is taken out of whatever measures are eventually introduced. So far, it has worked for them. And it will continue to work, because the consumers who benefit from the price cuts are on their side.”

ShelfLife contacted leading multiples to find out more about their submissions to Minister Bruton’s draft regulations. A spokesperson for The Musgrave Group confirmed: “Musgrave will be participating in the consultation on the Code of Practice,” but did not reveal further details. Tesco Ireland and IBEC’s Retail Ireland also confirmed that they were finalising their submissions at the time of going to print. Meanwhile a Lidl representative told ShelfLife:Lidl Ireland supports a Code of Practice that enhances fairness and openness for both Irish retailers and suppliers provided that it does not have the effect of adding significant cost to this relationship and is not detrimental to consumer interests.” Aldi Stores (Ireland) likewise issued a statement to ShelfLife stating: Aldi has reviewed the draft regulations and has made a submission as part of the consultation process.”

The Aldi statement continued: “Developing and maintaining long term sustainable partnerships with Irish suppliers has been the cornerstone of Aldi’s success and growth in Ireland over the last 15 years.The retailer practices the regulations refer to are largely inapplicable to Aldi’s business model and the mutually beneficial contracts and relationships we have with our suppliers. As the regulations are still only in draft format, it is unclear what the cost implications to Aldi will be. However, Aldi will of course comply with any statutory regulations that are put in place.”

From these responses, it certainly doesn’t appear that retailers are ‘quaking in their boots’ about what is coming down the line. However this does not necessarily mean that the new regulations will be ineffective from a supplier’s point of view. To see the sort of changes that the new laws could usher in, the situation in the UK delivers a good example of what could be achieved. The UK’s independent Groceries Code Adjudicator (GCA) Christine Tacon has already achieved several not insignificant victories, since she was first appointed to her post in January 2013.

Christine Tacon, the UK’s Groceries Code Adjudicator has reassured suppliers that she will protect their anonymity if they come forward with complaints

Christine Tacon, the UK’s Groceries Code Adjudicator has reassured suppliers that she will protect their anonymity if they come forward with complaints

Tacon secures UK results

In June of last year, eight major grocers in the UK agreed to put a time limit on forensic investigations of suppliers’ accounts in place, when searching for money that they might be owed. This agreement was reached after Tacon discovered that supermarkets and other food retailers had been employing forensic accountants to examine emails up to six years old in an attempt to claim payments that could tot up to millions of pounds. Nevertheless The Guardian reported that Sainsbury’s and Waitrose declined to sign up because they said the voluntary agreement was too weak to hold any real power over retailers and could potentially mask poor practice.

At a conference to mark her first year in office last year, Tacon said she had received complaints from suppliers that retailers were getting a kickback from stipulating that they must source their packaging from specific companies. These packaging companies were then allegedly charging the suppliers involved over the odds. Tacon indicated that packaging payments could be her first formal investigation, which could lead to financial penalties or the “naming and shaming” of retailers who have broken the code of conduct.

In Ireland, the CCPC will also have the power to “name and shame”. The Department of Jobs, Enterprise and Innovation has said: “The CCPC will have the power to publish a list of relevant grocery goods undertakings who have been found guilty of contravening the regulations or against which contravention notices have been issued (in essence a “name and shame” provision).” Fines can also be applied to those who flout the regulations under Section 63E of the Irish regulations. According to the Department, a person found guilty “on a first conviction on indictment for any such offence”, could receive “a fine not exceeding €60,000 or imprisonment for a term not exceeding 18 months or both”. On any subsequent conviction on indictment for the same offence, they could be subjected to “a fine not exceeding €100,000 or imprisonment for a term not exceeding 24 months or both”.

Meanwhile, over in the UK, Tesco has already found itself coming under the line of fire. In February, the GCA launched an investigation into Tesco over allegations that it delayed payments to suppliers and unfairly handled payments for shelf promotions.

Anonymity protected

Tacon said she made the decision after looking into practices associated with Tesco’s first half profit over-statement. On BBC Radio 4’s Today programme, she urged suppliers to come forward and reassured them that their anonymity would be protected.

“I can legally require suppliers to give me the information I want for an investigation,” she said. “I have a legal duty to protect their anonymity. And in this case there is very much safety in numbers and I frequently hear about the same issues from every sector in groceries from toilet rolls, to apples, to wine. I’m just looking for a large amount of evidence and anonymity will be protected.”

Fears over anonymity being breached are nothing new within the grocery sector, but Tacon appears to be doing her best to encourage suppliers to come forward. During her radio interview, she reiterated: “I can require them to name and shame – take out adverts in terms of what they have done.” At present, she is unable to introduce financial penalties because that part of her powers has not yet come into legislation. However in future she will be able to impose penalties on large retailers of up to 1% of their annual UK turnover.

While this sort of dent in their bottom line would never be welcomed by any retailer, the name and shame provision is also an important one. Given that the major retailers here in Ireland place a great deal of emphasis on their support for Irish suppliers and jobs, anything that put a negative slant on that message would be the stuff of PR nightmares.

The next step here on these shores will be for the Department to draw up a Regulatory Impact Analysis (RIA) of the proposed regulations’ introduction, after it has received all submissions. A Department spokesperson told ShelfLife on 6 March: “As of today, we have received 19 submissions. An extension of the deadline was requested by a number of stakeholders and further submissions are expected later today.” She added: “After the consultation period has concluded, the content of submissions received will be fully considered before the final version of the regulations is promulgated, and the regulations are signed by the Minister as soon as possible during 2015.”

Significantly, the Department specifically invited interested parties to supply an estimate of the likely cost in meeting the compliance provisions of the proposed regulations. These include the costs involved in the provision of training, maintenance of records, compliance reports, legal advice, responding to disputes, and responding to enforcement audits. While the CCPC might therefore be able to sink its fangs into retailers who contravene the Grocery Goods regulations, what we don’t yet know is how big a bite the new regulations as they stand will actually take out of the multiples’ profits.

 

 

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