Guidance

Groceries Supply Code of Practice

Published 4 August 2009

1. Interpretation

(1) In this Code:

Buying Team means those employees of a Retailer from time to time whose role includes at least one of the following: * direct involvement in buying Groceries for resale * (excluding the role of the Code Compliance Officer) the interpretation and application of the provisions of the Code or this Order * immediate management responsibility for any or all of those employees described in (a) and (b) above

Code Compliance Officer means the person from time to time appointed in accordance with Article 9(1) of the Order

De-list means to cease to purchase Groceries for resale from a Supplier, or significantly to reduce the volume of purchases made from that Supplier. Whether a reduction in volumes purchased is ‘significant’ will be determined by reference to the amount of Groceries supplied by that Supplier to the Retailer, rather than the total volume of Groceries purchased by the Retailer from all of its Suppliers

Groceries means food (other than that sold for consumption in the store), pet food, drinks (alcoholic and non-alcoholic, other than that sold for consumption in the store), cleaning products, toiletries and household goods, but excludes petrol, clothing, DIY products, financial services, pharmaceuticals, newspapers, magazines, greetings cards, CDs, DVDs, videos and audio tapes, toys, plants, flowers, perfumes, cosmetics, electrical appliances, kitchen hardware, gardening equipment, books, tobacco and tobacco products, Grocery shall be construed accordingly

Order means The Groceries (Supply Chain Practices) Market Investigation Order 2009

Payment or Payments means any compensation or inducement in any form (monetary or otherwise) and includes more favourable contractual terms

Primary Buyer means, in relation to any individual Supplier, the employee or employees within a Retailer’s Buying Team who are responsible from time to time for the day-to-day buying functions of the Retailer in respect of that individual Supplier

Promotion means any offer for sale at an introductory or a reduced retail price, whether or not accompanied by some other benefit to consumers that is in either case intended to subsist only for a specified period

Reasonable Notice means a period of notice, the reasonableness of which will depend on the circumstances of the individual case, including:

  • the duration of the Supply Agreement to which the notice relates, or the frequency with which orders are placed by the Retailer for relevant Groceries
  • the characteristics of the relevant Groceries including durability, seasonality and external factors affecting their production;
  • the value of any relevant order relative to the turnover of the Supplier in question
  • the overall impact of the information given in the notice on the business of the Supplier, to the extent that this is reasonably foreseeable by the Retailer

Retailer means any person carrying on a business in the UK for the retail supply of Groceries

a Retailer will ‘Require’ particular actions on the part of a Supplier if the relevant Supplier does not agree, whether or not in response to a request or suggestion from the Retailer, to undertake an action in response to ordinary commercial pressures. Where those ordinary commercial pressures are partly or wholly attributable to the Retailer, they will only be deemed to be ordinary commercial pressures where they do not constitute or involve duress (including economic duress), are objectively justifiable and transparent and result in similar cases being treated alike. The burden of proof will fall on the Retailer to demonstrate that, on the balance of probabilities, an action was not Required by the Retailer

Senior Buyer means, in relation to any individual Supplier, an employee (or employees) within a Retailer’s Buying Team, who manages the Primary Buyer (or Primary Buyers) for that Supplier (or is otherwise at a higher level than the Primary Buyer within the management structure of the Retailer)

Shrinkage means losses that occur after Groceries are delivered to a Retailer’s premises and arise due to theft, the Groceries being lost or accounting error

Supplier means any person carrying on (or actively seeking to carry on) a business in the direct supply to any Retailer of Groceries for resale in the United Kingdom, and includes any such person established anywhere in the world, but excludes any person who is part of the same group of interconnected bodies corporate (as defined in section 129(2) of the Enterprise Act 2002) as the Retailer to which it supplies

Supply Agreement means any agreement which must be recorded in writing pursuant to Article 6(1) of the Order. Wastage means Groceries which become unfit for sale subsequent to them being delivered to Retailers.

(2) Compliance with the Code does not exclude any person from, or restrict the application of, the Competition Act 1998.

1.1 PART 2—FAIR DEALING

2. Principle of fair dealing

A Retailer must at all times deal with its Suppliers fairly and lawfully. Fair and lawful dealing will be understood as requiring the Retailer to conduct its trading relationships with Suppliers in good faith, without distinction between formal or informal arrangements, without duress and in recognition of the Suppliers’ need for certainty as regards the risks and costs of trading, particularly in relation to production, delivery and payment issues.

2.1 PART 3—VARIATION

3. Variation of Supply Agreements and terms of supply

(1) Subject to paragraph 3(2), a Retailer must not vary any Supply Agreement retrospectively, and must not request or require that a Supplier consent to retrospective variations of any Supply Agreement.

(2) A Retailer may make an adjustment to terms of supply which has retroactive effect where the relevant Supply Agreement sets out clearly and unambiguously:

  • any specific change of circumstances (such circumstances being outside the Retailer’s control) that will allow for such adjustments to be made; and
  • detailed rules that will be used as the basis for calculating the adjustment to the terms of supply.

(3) If a Retailer has the right to vary a Supply Agreement unilaterally, it must give Reasonable Notice of any such variation to the Supplier.

4. Changes to supply chain procedures

A Retailer must not directly or indirectly Require a Supplier to change significantly any aspect of its supply chain procedures during the period of a Supply Agreement unless that Retailer either:

  • gives Reasonable Notice of such change to that Supplier in writing; or
  • fully compensates that Supplier for any net resulting costs incurred as a direct result of the failure to give Reasonable Notice.

4.1 PART 4—PRICES AND PAYMENTS

5. No delay in Payments

A Retailer must pay a Supplier for Groceries delivered to that Retailer’s specification in accordance with the relevant Supply Agreement, and, in any case, within a reasonable time after the date of the Supplier’s invoice.

6. No obligation to contribute to marketing costs

Unless provided for in the relevant Supply Agreement between the Retailer and the Supplier, a Retailer must not, directly or indirectly, Require a Supplier to make any Payment towards that Retailer’s costs of:

  • buyer visits to new or prospective Suppliers
  • artwork or packaging design
  • consumer or market research
  • the opening or refurbishing of a store or
  • hospitality for that Retailer’s staff

7. No Payments for shrinkage

A Supply Agreement must not include provisions under which a Supplier makes Payments to a Retailer as compensation for Shrinkage.

8. Payments for Wastage

A Retailer must not directly or indirectly Require a Supplier to make any Payment to cover any Wastage of that Supplier’s Groceries incurred at that Retailer’s stores unless:

  • such Wastage is due to the negligence or default of that Supplier, and the relevant Supply Agreement sets out expressly and unambiguously what will constitute negligence or default on the part of the Supplier; or
  • the basis of such Payment is set out in the Supply Agreement.

9. Limited circumstances for Payments as a condition of being a Supplier

A Retailer must not directly or indirectly Require a Supplier to make any Payment as a condition of stocking or listing that Supplier’s Grocery products unless such Payment:

  • is made in relation to a Promotion; or
  • is made in respect of Grocery products which have not been stocked, displayed or listed by that Retailer during the preceding 365 days in 25 per cent or more of its stores, and reflects a reasonable estimate by that Retailer of the risk run by that Retailer in stocking, displaying or listing such new Grocery products.

10. Compensation for forecasting errors

(1) A Retailer must fully compensate a Supplier for any cost incurred by that Supplier as a result of any forecasting error in relation to Grocery products and attributable to that Retailer unless:

(a) that Retailer has prepared those forecasts in good faith and with due care, and following consultation with the Supplier; or (b) the Supply Agreement includes an express and unambiguous provision that full compensation is not appropriate.

(2) A Retailer must ensure that the basis on which it prepares any forecast has been communicated to the Supplier.

11. No tying of third party goods and services for Payment

(1) A Retailer must not directly or indirectly Require a Supplier to obtain any goods, services or property from any third party where that Retailer obtains any Payment for this arrangement from any third party, unless the Supplier’s alternative source for those goods, services or property:

  • fails to meet the reasonable objective quality standards laid down for that Supplier by that Retailer for the supply of such goods, services or property; or
  • charges more than any other third party recommended by that Retailer for the supply of such goods, services or property of an equivalent quality and quantity.

11.1 PART 5—PROMOTIONS

12. No Payments for better positioning of goods unless in relation to Promotions

A Retailer must not directly or indirectly Require a Supplier to make any Payment in order to secure better positioning or an increase in the allocation of shelf space for any Grocery products of that Supplier within a store unless such Payment is made in relation to a Promotion.

13. Promotions

(1) A Retailer must not, directly or indirectly, Require a Supplier predominantly to fund the costs of a Promotion.

(2) Where a Retailer directly or indirectly Requires any Payment from a Supplier in support of a Promotion of one of that Supplier’s Grocery products, a Retailer must only hold that Promotion after Reasonable Notice has been given to that Supplier in writing. For the avoidance of doubt, a Retailer must not require or request a Supplier to participate in a Promotion where this would entail a retrospective variation to the Supply Agreement.

14. Due care to be taken when ordering for Promotions

(1) A Retailer must take all due care to ensure that when ordering Groceries from a Supplier at a promotional wholesale price, not to over-order, and if that Retailer fails to take such steps it must compensate that Supplier for any Groceries overordered and which it subsequently sells at a higher non-promotional retail price.

(2) Any compensation paid in relation to paragraph 14(1) above will be the difference between the promotional wholesale price paid by the Retailer and the Supplier’s non-promotional wholesale price.

(3) A Retailer must ensure that the basis on which the quantity of any order for a Promotion is calculated is transparent. 16

14.1 PART 6—OTHER DUTIES

15. No unjustified payment for consumer complaints

(1) Subject to paragraph 15(3) below, where any consumer complaint can be resolved in store by a Retailer refunding the retail price or replacing the relevant Grocery product, that Retailer must not directly or indirectly Require a Supplier to make any Payment for resolving such a complaint unless:

  • the Payment does not exceed the retail price of the Grocery product charged by that Retailer; and
  • that Retailer is satisfied on reasonable grounds that the consumer complaint is justifiable and attributable to negligence or default or breach of a Supply Agreement on the part of that Supplier.

(2) Subject to paragraph 15(3) below, where any consumer complaint cannot be resolved in store by a Retailer refunding the retail price or replacing the relevant Grocery product, that Retailer must not directly or indirectly Require a Supplier to make any Payment for resolving such a complaint unless:

  • the Payment is reasonably related to that Retailer’s costs arising from that complaint;
  • that Retailer has verified that the consumer complaint is justifiable and attributable to negligence or default on the part of that Supplier;
  • a full report about the complaint (including the basis of the attribution) has been made by that Retailer to that Supplier; and
  • the Retailer has provided the Supplier with adequate evidence of the fact that the consumer complaint is justifiable and attributable to negligence or default or breach of a Supply Agreement on the part of the Supplier.

(3) A Retailer may agree with a Supplier an average figure for Payments for resolving customer complaints as an alternative to accounting for complaints in accordance with paragraphs 15(1) and 15(2) above. This average figure must not exceed the expected costs to the Retailer of resolving such complaints.

16. Duties in relation to De-listing

(1) A Retailer may only De-list a Supplier for genuine commercial reasons. For the avoidance of doubt, the exercise by the Supplier of its rights under any Supply Agreement (including this Code) or the failure by a Retailer to fulfil its obligations under the Code or this Order will not be a genuine commercial reason to De-list a Supplier.

(2) Prior to De-listing a Supplier, a Retailer must:

  • provide Reasonable Notice to the Supplier of the Retailer’s decision to De-list, including written reasons for the Retailer’s decision. In addition to the elements identified in paragraph 1(1) of this Code, for the purposes of this paragraph ‘Reasonable Notice’ will include providing the Supplier with sufficient time to have the decision to De-list reviewed using the measures set out in paragraphs 16(2)(b) and 16(2)(c) below;
  • inform the Supplier of its right to have the decision reviewed by a Senior Buyer, as described in paragraph 17 of this Code; and
  • allow the Supplier to attend an interview with the Retailer’s Code Compliance Officer to discuss the decision to De-list the Supplier.

17. Senior Buyer

(1) A Retailer’s Senior Buyer will, on receipt of a written request from a Supplier, review any decisions made by the Retailer in relation to the Code or this Order.

(2) A Retailer must ensure that a Supplier is made aware, as soon as reasonably practicable, of any change to the identity and/or contact details of the Senior Buyer for that Supplier.