Groceries Supply Code of Practice - update

Christine Tacon, the Groceries Supply Code of Practice (GSCOP) adjudicator has now been in office for just over a year. It is therefore timely to consider how the adjudicator is approaching the role and how that role is likely to develop.

To recap the adjudicator’s principal functions are two-fold, first, to adjudicate on specific claims from food and grocery suppliers that retailers regulated by GSCOP are not acting in accordance with the requirements of GSCOP and, secondly, to investigate more generally whether retailers are complying with GSCOP and with recommendations made by the adjudicator in relation to GSCOP compliance and to take action where this is not the case.

The powers of the adjudicator include powers to “name and shame” defaulting retailers, to make recommendations as to practices to be adopted to meet GSCOP obligations and, potentially, to impose fines on those who fail to comply. The level of fines is not yet established and requires confirmation by the Secretary of State. The adjudicator has requested that the maximum fine should be based on a percentage of the turnover of the offending retailer. If this request is approved by the Secretary of State, maximum fines will could amount to tens if not hundreds of millions of pounds. Fines at that level will certainly ensure that GSCOP compliance becomes an important issue for the retailers affected. In addition to remedies that can be imposed by the adjudicator, individual suppliers can, in principle, bring breach of contract claims against retailers where failure to comply with GSCOP has led to loss.

A number of surveys have shown that areas remain where GSCOP compliance remains limited. Surveys also show that there is continuing reluctance on the part of suppliers to bring evidence of GSCOP breaches to the attention of the adjudicator for investigation. This is perhaps unsurprising given the dependence of many suppliers on their relationships with key retail customers.

The lack of references from suppliers to the adjudicator whether for adjudication of specific disputes or, more generally, for investigation of non-compliant practices is clear from the adjudicator’s report on her first year of operation. That report confirms that so far there have been no adjudications on GSCOP non-compliance and, reading between the lines, only a couple of requests for investigation of non-compliant practices. It is still early days. However, this low level of utilisation of the adjudication process has prompted the adjudicator to make comment to the effect that unless suppliers are willing to come forward with evidence of non-compliance to give the adjudicator something to work with it will be very difficult for the adjudicator to achieve the objectives which underpin GSCOP.

On the more positive side:

• The adjudicator has reiterated assurances that if issues are raised for investigation, they will be handled appropriately and that confidentiality will be maintained.
• The adjudicator is working with retailers to encourage voluntary GSCOP compliance. Indeed some retailers have sought guidance from the adjudicator on proposed charges to suppliers for promotional activity to ensure that their GSCOP obligations are being met.
• The adjudicator has secured voluntary agreement from a number of the retailers to alter their “forensic investigation” practices. These are practices under which suppliers’ accounts for previous years are reviewed by the retailer with a view to assessing whether retrospective payments are due. Certain retailers have agreed to cut the periods to which these retrospective demands can relate from six to two years.

Another indication of the way in which the adjudicator is seeking to increase the focus on GSCOP compliance has become apparent in relation to the much publicised inquiry into how Tesco came to overstate its half-year profits by £250 million. It has been suggested that this arose at least in part from incorrect assumptions as to the level of supplier rebates and other “support” payments Tesco expected to receive. Christine Tacon has urged Tesco to extend its investigation to include a review of its GSCOP compliance. Not wholly surprisingly Tesco’s initial response to this has been muted and to the effect that it will be continuing to ensure that it is “Code compliant”. However, should the results of the investigation point to the possibility of Code breaches, it will be less easy for Tesco to avoid further investigation.

The next 12 months will provide the real test for the effectiveness of the adjudicator and whether suppliers are willing to come forward with hard evidence of non-compliant practices which merit investigation.