The Office of Fair Trading announced last month that it saw no need for any further regulation of supermarkets’ relationships with suppliers and no change was needed in the current Code of Practice. But there are still calls for regulation and claims that the supermarkets are too big and powerful. Chris Lyddon reports.
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“The OFT has concluded that the Supermarkets Code of Practice should remain unchanged but be used more effectively,” the UK’s Office of Fair Trading said last month. “Consumers are benefiting from competition in grocery retailing, and evidence has not come forward that the code is being breached.”
Opposition has been led by farmers’ groups. “A climate of fear still exists and the OFT’s conclusions have by no means given supplier-retailer relationships a clean bill of health,” said Peter Kendall, deputy president of the National Farmers Union. “I welcome the acknowledgement by the OFT that it has a role to play in not only monitoring and implementing the code, but also informing and encouraging suppliers to use the code to make complaints where appropriate.”
“The NFU stands ready to help facilitate meetings between suppliers concerned with their dealings with supermarkets and the OFT,” he said. “However, there is little in this statement that will stop or reduce the bullying tactics that some companies apply to their suppliers. This is unlikely to be influenced other than by a tougher statutory code.”
Even the supermarkets sometimes complain about the supermarkets. In a recent interview with the Sunday Times, Lee Scott, president and chief executive of Wal-Mart, which owns Asda in Britain, called on the government to investigate the power of Tesco.
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By GlobalDataCall for anonymous evidence
Ben Pinnington, spokesman for the Forum of Private Business, told just-food the key to successful application of the code was for the OFT to take anonymous evidence. “The government’s bending over backwards to take anonymous evidence against terror suspects,” he told just-food. Although he acknowledged that was not quite the same as complaints under the supermarket code, he believed the OFT could find a way of taking evidence discreetly if it wanted to.
“The OFT needs to find a way to take evidence on an anonymous basis,” he said. “Everybody knows who is involved in this industry that the code of practice is not working. Unless the code of practice is enforced it is not worth the paper it is written on.”
Supermarket suppliers did not want to criticise their customers. “They fear their business will be destroyed if they do,” he said. “We know it is being breached and that there is a lot of bad practice going on.”
The power of the big four supermarkets, Tesco, Asda, Sainsbury and Morrisons/Safeway, for which the code is mandatory, was enormous. “Unless an organisation with real power stands up and defends small businesses they will continue to be abused,” he said. “I was speaking to a supplier the other week who said that if Tesco kept screwing him down on price he feared he would be out of business within a year. If you work for the OFT you’re not going to go out of business. These people need the OFT to defend them.”
“There’s a lot of frustration out there,” he said. “We will see more bullying of small businesses. There’s no fear of the OFT. It needs to be a tiger and it’s a pussy cat.”
He compared suppliers’ relationships with the supermarkets with an uneven boxing match. “The OFT is the referee,” he said. “It’s an unfair match, but if the referee doesn’t intervene when there are nasty blows going in under the belt, there’s even less chance of the little guy surviving.”
He was convinced there was abuse. “Anybody in the food industry will tell you it’s happening. We know it’s happening,” he said. “The fact that people won’t put their heads above the parapet shows that the OFT needs to bare its teeth.”
Kevin Hawkins, director general of the British Retail Consortium, the trade organisation which represents retailers, pointed out that the market was already regulated. “It’s not voluntary,” he said of the code. “It’s mandatory on the big four.”
He told just-food that the OFT had already said in April the supermarkets were observing the code. “Unfortunately, it said the suppliers aren’t using the code,” he said. “They aren’t making complaints. They say ‘we’re afraid to put our heads over the parapet for fear of losing business’. The OFT said there was no evidence that this would happen. As they say in their report, the code is not meant to shield suppliers from hard bargaining.”
Kevin Hawkins explained that competition law focussed on the benefit to the consumer. “It doesn’t recognise suppliers as such,” he said. “It judges competitive behaviour in the market place in terms of how consumers benefit.”
“Whether it should concern itself with suppliers is open to debate,” he said. “As things stand, consumers are supreme.”
He explained the history of scrutiny of the UK supermarket sector, since the government’s ‘Rip Off Britain’ campaign of some years ago. “We’ve had two competition enquiries and two OFT enquiries since the late 1990s,” he said. “The first OFT report led to the Code of Practice which came in in 2002.” There was more investigation when the Safeway chain came up for takeover. “The Competition Commission had to tread over broadly the same ground and it reached the same conclusion – that consumers are getting a good deal.”
And the OFT’s latest report had said that suppliers were generally satisfied with their relationship with supermarkets. “That being the case it’s very difficult to see where we go from here,” he said. “The OFT has kicked into touch conclusively any notion that the sector needs an ombudsman or a regulator.”
OFT rejects anonymity
His response to calls for anonymity was to quote the OFT’s report findings on the subject. “Natural justice does not allow findings to be made without both sides being able to put their case. It is standard practice for an ombudsman, when he receives a complaint, to send a copy of the complaint to the body complained about (or at least to send details of the complaint to it). It is normal for an ombudsman to require the individual to take their complaint to the company in the first instance and exhaust its own complaints procedure, before he will consider the case,” paragraph 3.13 of the report said.
In any case anonymity was practically impossible. “There are a limited number of suppliers to any supermarket and most of them will have been suppliers for a long time,” he said. “They are all well known. If you could make an anonymous complaint, it would become rapidly perfectly obvious to the supermarket concerned where the complaint was coming from. It’s naïve for anyone to assume anonymity is achievable.”
Before he took up his BRC role, Kevin Hawkins was director of communications at Safeway, the chain since taken over by Wm Morrison. He didn’t agree that suppliers would be fired because they made a complaint under the code to a supermarket. “When I was at Safeway I was involved with every delisting of a supplier and the only reason we ever delisted a supplier was for poor performance,” he said. “In any supply chain there is always a vigorous relationship between suppliers and retailers. You do not sack a good supplier just because you have an argument with them.”
There were things that had been suggested to improve supplier/supermarket relationships, but suppliers had been slow to take them up. “The OFT said that details of agreements should be in writing,” he said. “That was an aim of the code. There’s been a lot of resistance to that on the part of the suppliers. In April the OFT said it could not actually find a single case in which a supplier had asked a supermarket for a copy of the code.”
“It’s very difficult to see where we go from here,” he said. “Competition is going to get stiffer, not easier.”
The Office of Fair Trading’s line is that it is up to the suppliers and the supermarkets to sort out problems. “If somebody’s got a problem with a supermarket they should go to the supermarket,” spokeswoman Julia Smith told just-food. “Under the code it is for the supplier to go to the supermarket and say the code has been breached. They can then go to mediation – using a mediator.”
The OFT was not a mediator, but it was happy to talk to suppliers or supermarkets on a confidential basis. “They can come to us as a sounding board,” she said.
