Learn why code of conduct review roasts supermarkets

Posted by AFN Staff Writers on 11th July 2018

SUPERMARKETS continue to treat suppliers unfairly, says a review of the Food and Grocery Code of Conduct calling out a lack of good faith on behalf of the retailers to improve poor practices.

Former ACCC boss Graeme Samuel is conducting the review that wants the companies and family-owned businesses behind the brands to be treated fairly by the major supermarkets and wholesalers that have greater bargaining power.

“This ensures that suppliers are able to invest and innovate to give consumers the best choice, quality and value at the checkouts,” Professor Samuel said.

Prof Samuel said it is clear the original architects of the Grocery Code (Coles, Woolworths and the Australian Food and Grocer Council) had envisaged good faith and fair dealings to play a major role in strengthening commercial relationships in the grocery sector.

Also in this edition of Australian Food News

Good faith provisions below expectation

In the draft review Prof Samuel quotes Coles managing director John Durkan: “Coles has worked hard to embed a strong culture of fair dealings with our suppliers. We devote a lot of time and resources in mentoring team members to do the right thing.”

Prof Samuel said while the good faith principles in the Grocery Code have gone some way towards setting broad expectations of fair dealings, there is a need to enhance the role and utility of this important fairness obligation.

“From the evidence and feedback received during the review, it appears that the current good faith provisions have not lived up to industry expectations,” Prof Samuel said.

The draft of this first review of the Grocery Code, established in 2015, has been released for public consultation until August 1.

The Grocery Code is unique in that it is an industry-led initiative and the only voluntary prescribed industry code of its kind.

ALDI, Coles, Woolworths and About Life Pty Ltd have become signatories and are bound by the Grocery Code, which is enforced by the Australian Competition and Consumer Commission.

Metcash has controversially declined to sign up to the code, getting it onboard is a goal of the review.

Problematic behaviours

  • A retailer’s buyer had threatened a supplier with delisting, reducing their ranging and offering poorer shelf space unless the supplier entered into an agreement that offered the retailer higher margins.
  • A supplier had over 70 per cent of their business dedicated to supplying a single retailer and invested to up-scaled production based on the buyer’s commitment to increase orders. A sudden change in buying personnel resulted in an extreme cut-back in distribution of the supplier’s product. No recognition was given to previous commitments and little regard was given to the detrimental impact on the supplier’s business.
  • A supplier was given only two weeks’ notice prior to a range review, without adequate time to prepare data to respond to the retailer’s delisting decisions or pitch new products.
  • Suppliers being pressured to cycle promotional activities at the same dollar value every year without any regard given to the potential costs or benefits to the supplier.
  • Late cancellations of orders that the supplier had already procured and paid for from overseas.

Key recommendations include

The draft report makes a total of 14 recommendations to ensure the Grocery Code continues working effectively for the food and grocery industry.

  • calling for all significant wholesalers and retails to be bound by the Grocery Code, including Metcash Ltd (the only national wholesaler), to create further cultural change;
  • strengthening and elevating the good faith provision to allow for a greater application of fairness to be considered; and
  • enhancing the role of the code compliance manager (a key feature of dispute resolution under the Grocery Code) to become an independent adjudicator to address suppliers’ fear of retribution for making a complaint against a signatory.

Key documents

This consultation is part of the Food and Grocery Code of Conduct Review.

On 2 July 2018 the review released its draft report for public consultation.

Submissions on the draft report are due by 1 August 2018.