Sound bites – the UK grocery "code of practice"
The UK's Competition Commission is to introduce a code of practice for supermarkets in a bid to ensure the fair treatment of suppliers and address issues hindering competition in the market.
In its investigation into competition in the UK's grocery sector last year, the Commission said that a code of practice was required to control the buying power of certain supermarkets.
While some have welcomed the new proposals, others believe they are a step too far in the current economic climate.
just-food spoke to the Commission, as well as a number of retailers and supplier representatives, for their take on the proposals.
Rory Taylor, Competition Commission
There is a code of practice in place at the moment but it only applies to four retailers who signed up voluntarily back in 2000. While we found out that the existing code of practice had its uses and did control the behaviour of the people who had signed up to it, given what we heard during the enquiry, particularly from suppliers about their relationship with retailers, we felt [the code] could do with being strengthened in certain areas and clarified.
If we didn't take action to strengthen the suppliers position a bit then ultimately, it can create a great deal of uncertainty. It doesn't seem unreasonable to have contracts in writing. There's a lot that can happen in terms of supplying food. You can't legislate each and every one of them but what you can certainly do is you can say 'okay, discuss these things up front'.
We don't want to stop what you might call a healthy tension - these are commercial negotiations - but we hope that it will create a beneficial relationship. Of course, the supermarkets were telling us there were no problems as far as they were concerned with supplier relationships but it wasn't what we were hearing from the other side so we hope that [the code] will certainly be an important step to improving things."
Lucy Neville-Rolfe, executive director, Tesco
"In the current sensitive economic climate, this proposal adds substantial costs to an industry that is generally working well for the consumer. The Commission says they are seeking to avoid undue burdens on business, but they have done no cost-benefit analysis of the kind usually carried out under Government guidelines on regulation.
We are glad the order is out for consultation, and we will be making a number of points to reduce compliance costs for all concerned and avoid regulatory creep. For example, very minor changes to arrangements will now have to be formally confirmed in writing, which will involve an extra two million emails a year for Tesco alone. Also, while we are happy to have a protocol for delisting of suppliers - which the whole industry understands as ending a relationship - this has been extended to volume changes which could have unintended effects. Perversely, the rules on reporting are more burdensome for UK companies than for foreign-owned retailers.
We want to see a framework which allows us to work with suppliers to get a good deal for customers."
The Food & Drink Federation (FDF)
"The FDF supports the proposed Grocery Supply Code of Practice to set a clear framework that will allow commercial relationships in the supply chain to operate fairly. There is a need to make sure that the extended Code of Practice operates effectively and allows any improper use of market power to be identified and dealt with."
"The 11 stores covered by this code operate within a highly competitive grocery market, one of the few sectors in the economy that is still thriving and delivering both value for customers and an important boost to the economy. In its own report a year ago, the Competition Commission admitted the introduction of this code will lead to price increases for customers. In the middle of a recession this seems a perverse path to follow.
The world has moved on, and everyone's primary concern should be how we can save people money. This code represents a mandate for poorly-run companies to sneak through price rises at the expense of our customers. Good manufacturers will lose out, as they can't rightfully replace the poor ones. If this is allowed to happen the recession will be both deeper and longer heaping unnecessary pain and anguish on millions of families.
The solution is to allow markets to operate freely and without the unnecessary burden of red tape and further regulation. It is simply not in our interests to treat our manufacturers unfairly. We need a healthy supply base to ensure we have the products our customers want to buy.
The National Farmers Union (NFU)
We will need time to consider the proposals and to consult with our members but, on first inspection, the Competition Commission appears to have taken on board comments that the NFU made during an informal consultation late last year. The code appears to be more robust, less open to interpretation and covers more retailers than the 2001 Code of Practice. However, a strengthened code will only work if it is accompanied by a robust and proactive enforcement mechanism. The accompanying remedy of an ombudsman is the only such mechanism proposed currently. The NFU asks retailers to sign the undertakings to put in place such an office and if they do not, then we would ask that the Department for Business, Enterprise and Regulatory Reform legislates to make this a reality.
It is clear that an ombudsman would be in the best interests of consumers. Professor Roger Clarke's paper clearly demonstrates that the remedies proposed would give suppliers the confidence to invest and to innovate. This in turn would mean that consumers would benefit from a greater choice of products and maybe even lower prices in the long term.
We have always sought to set or match industry best practice and, indeed, made a voluntary commitment to abide by the spirit and underlying principles of the Supermarket Code of Practice drawn up by the Competition Regulator in 2001 even though, at the time, it did not cover retailers of our size. We believe the Competition Commission's recent and extensive work into the UK grocery retailing sector confirmed that we had, very largely, delivered on this commitment.
However, we are open to the development of a reinvigorated Supermarkets Code of Practice that incorporates a notion of 'fair dealing' with suppliers.
The Competition Commissioners did not reach a unanimous decision on the merits of introducing a supermarket watchdog and, accordingly, we feel it is crucially important that the remit and powers of such a regulator be debated fully across the sector ahead of any formal appointment. In this regard we welcome the Commission's proposals on consultation. As a consumer-owned business we will, of course, support a grocery ombudsman if the debate demonstrates that it will produce real benefit for our customers and members.
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