COMPETITION
COMMISSION News Release (08/09) issued by COI News Distribution
Service. 26 February 2009
The Competition
Commission (CC) has today published a draft Order for consultation
which will see the creation of a new strengthened and extended
Groceries Supply Code of Practice (GSCOP).
The Order, which is available at http://www.competition-commission.org.uk,
follows the CC's inquiry into UK groceries retailing last
year, which concluded that measures were needed to address its
concerns about relationships between retailers and their
suppliers. The CC will also shortly publish a draft Order
outlining measures to prevent exclusivity arrangements and
restrictive covenants being used by grocery retailers to restrict
entry by competitors in order to improve competition in local
areas. The CC will consider responses to the draft Orders before
finalizing them.
The CC will also be consulting publicly in the next couple of
weeks on draft undertakings which would establish an Ombudsman to
oversee and resolve disputes under the new Code. Unlike with the
GSCOP, the CC does not have the power to establish an Ombudsman
itself, so this requires the agreement of retailers.
Peter Freeman, CC Chairman and Chairman of the Groceries Inquiry
said: The new Code of Practice will be included in all
retailers' contracts with their suppliers and provide a much
clearer framework for these agreements. We want to ensure that
suppliers do not have costs imposed on them unexpectedly or
unfairly by retailers.
The Code will prohibit retrospective changes to terms and
conditions, and limit the extent to which suppliers are required
to pay for listings, promotions, inaccurate forecasts or customer
complaints. It will also set out a clear procedure for resolving
disputes and the requirement for retailers to provide reasonable
notice and commercial justification before a supplier is de-listed.
We are not seeking to impose overly restrictive rules on
commercial negotiations and it is not possible to set rules for
every set of circumstances in supply agreements, given the variety
of products, suppliers and situations.
What we are introducing are clear standards so that, for example,
those elements in a supply agreement that could be subject to
uncertainty and change are discussed up front, so that both
parties are agreed on how costs and payments will be allocated in
those situations.
Suppliers are entitled to know where they stand and invest with
greater security, which is provided by the strengthened Code. By
extending the Code to include other retailers, it will also ensure
that more suppliers benefit from this protection. Without it, the
uncertainty and hardship caused by certain practices could
significantly damage investment and innovation by suppliers and in
turn, therefore, also harm consumers. We remain clear that an
Ombudsman is needed but the Code in itself will be a major
improvement to relationships between retailers and suppliers and
ultimately we think that will be in everyone's interest.
The GSCOP is based on the existing SCOP, but will be amended such that:
* the provisions of the GSCOP are included in every contract
between grocery retailers and their suppliers;
* all retailers with groceries turnover in excess of £1 billion
per year are included within its scope;
* an overarching fair dealing provision is included;
* retailers are prohibited from making retrospective adjustments
to terms and conditions of supply;
* retailers are prohibited from entering into arrangements with
suppliers that result in suppliers being held liable for losses
due to shrinkage;
* retailers are required to enter into binding arbitration to
resolve any dispute with a supplier; and
* retailers are required to keep written records of all
agreements with suppliers on terms and conditions of supply.
The CC's recommendation for the inclusion of a
'competition test' in planning decisions on larger
grocery stores was challenged by Tesco in a hearing at the
Competition Appeal Tribunal (CAT) in November 2008. The CC is
awaiting the CAT's verdict.
Notes for editors
1. Under the Enterprise Act 2002 the Office of Fair Trading (OFT)
can make a market investigation reference to the CC if it has
reasonable grounds for suspecting that competition is not working
effectively in that market.
2. The inquiry was referred by the OFT on 9 May 2006. This market
investigation reference followed an initial OFT study into the
sector and public consultation. The CC published its final report
on April 30 2008. See news release at: http://www.competition-commission.org.uk/press_rel/2008/apr/pdf/14-08.pdf.
3. The members of the Inquiry Group are: Peter Freeman (Group
Chairman), Jayne Almond, Barbara Donoghue, Alan Gregory, Alan
Hamlin and Bruce Lyons.
4. Further information on the CC and its procedures, including
its policy on the provision of information and the disclosure of
evidence, can be obtained from its website at: http://www.competition-commission.org.uk.
5. Enquiries should be directed to Rory Taylor (email
rory.taylor@cc.gsi.gov.uk) on 020 7271 0242.