Code clarification: payments for multi-channel participation
The GCA determination of the Wm Morrison Supermarkets plc multi-channel initiative and its implementation.
Theme of case study
Part 3 of the Code – Variation of supply agreements and terms of supply. Part 9 of the Code – Limited circumstances for payments as a condition of being a supplier; listing fees.
Wm Morrison Supermarkets plc.
Summary of the issue
The GCA received correspondence from a trade association in December 2013 setting out concerns from its members regarding Wm Morrison Supermarkets plc new multi-channel initiative. Further direct contact was also received from a number of suppliers.
The multi-channel initiative by Wm Morrison Supermarkets plc is described below:
“The starting point for our approach to suppliers has been in relation to the move into convenience and online which are new sales channels to Morrisons. Its focus is on the selection of products customers most want to buy and would expect to be available through Wm Morrison online business and smaller format convenience stores. Wm Morrison has been clear with all suppliers engaged in the selection process that we were requesting support but that this is not a requirement. We asked suppliers for an optional ‘multi-channel status’ payment of a set amount per product. Through multi-channel status suppliers’ products would be offered greater exposure and sales opportunity.
Suppliers who declined to make the requested payment verbally during initial contact were not sent further correspondence. Suppliers who expressed an interest or who told the team they were considering participation were sent details in writing.
Suppliers who did not wish to take multi-channel status have not had any negative consequence in their existing trading relationship with us. We made suppliers an offer and where they declined we did not penalise them in any way for their decision.”
Wm Morrison Supermarkets plc believes it has been clear with all suppliers engaged in the selection process that this is a request for support in featuring selected products for the online and convenience stores but that it is not a requirement.
In the process of implementing the new multi-channel initiative, a number of suppliers had funds debited from their trading accounts without having agreed to participate.
Outcome and/or GCA decision
Having considered the information provided by Wm Morrison Supermarkets plc, the GCA concluded that:
The multi-channel initiative is part of the normal operations of Wm Morrison Supermarkets plc and is not a separate business. Therefore Part 9 of the Code – Limited circumstances for payments as a condition of being a supplier; listing fees - applies and prohibits the requirement of payments other than in relation to a promotion or for new grocery products, as defined. Where existing suppliers are invited to participate, this might be done by agreeing new terms of supply or variations to existing terms of supply, depending on the contracting cycle, nature and scale of any changes to current supply practices.
Wm Morrison Supermarkets plc has breached the Code by unilaterally making deductions from the trading accounts of 67 suppliers. This is in breach of Part 3 of the Code – Variation of supply agreements and terms of supply. We note that Wm Morrison Supermarkets plc has since rectified this and reimbursed the suppliers affected.
The GCA accepted Wm Morrison Supermarkets plc view that the multi-channel initiative was a request to suppliers and not a requirement to pay a listing fee. Part 9 of the Code applies – Limited circumstances for payments as a condition of being a supplier. To clarify, the fee does not have to be paid for a product to be part of the multi-channel initiative. The decision will ultimately be made by Wm Morrison Supermarkets plc as to which products customers are most likely to want through the online and convenience store channels.
The GCA wrote to Wm Morrison Supermarkets plc on 16 January 2014 requesting further information about the initiative and how it was consistent with the Code. Subsequent correspondence and meetings sought to establish the basis of the multi-channel initiative to allow the GCA to draw conclusions on its compliance with the Code.
The GCA wrote to Wm Morrison Supermarkets plc on 13 May 2014 setting out the conclusions of the review.