Transparency data

GCA response to the open letter from the CMA to the groceries sector

Published 30 June 2023

David Stewart
Executive Director, Markets and Mergers
Competition & Markets Authority

By email only

27 June 2023

Dear David

I am writing in response to your open letter to stakeholders in the groceries sector dated 30 May 2023.

As you know, my role as Groceries Code Adjudicator (GCA) is to ensure the fair and lawful treatment of direct suppliers of groceries for sale in the UK by retailers designated by the CMA (“Retailers”) under the Groceries (Supply Chain Practices) Market Investigation Order 2009 (“the Order”). I do this by monitoring and enforcing Retailer compliance with the Groceries Supply Code of Practice (“the Code”).

I have been discussing the impact of inflation on the groceries sector with suppliers and Retailers and want to update you about what I have heard and the action I have taken in response.

Each year I conduct a survey of suppliers to better understand perceptions of Retailer compliance with the Code and to inform my priorities. In each of the last two years, I have asked suppliers about their experiences of requesting cost price increases (CPIs) from Retailers.

In my 2022 survey (open from 17 January to 27 February 2022) 80% of direct suppliers reported having requested a CPI from at least one Retailer in the preceding 12 months. In the 2023 survey (open from 16 January to 27 February 2023) this had risen to 91%.

Having heard supplier concerns about CPI negotiations, I developed a best practice approach for negotiation of CPIs (below). These were agreed with Retailers and published in January 2022. This best practice approach is intended to ensure that suppliers do not face excessive risks or unexpected costs in the course of their discussions with Retailers about CPIs and is encapsulated in 7 Golden Rules:

1. Clear communication from the outset by retailers about the process and how long it will take;
2. Awareness, and prioritisation, of the possible greater impact on smaller suppliers;
3. Support for buyers from colleagues who have experience of dealing with CPI requests;
4. Only asking for the specific information from suppliers that is needed to make a CPI decision;
5. Clear communication of the outcome, so there can be no grey areas;
6. No automatic delists or fixed delist notice periods following CPI negotiations;
7. Reminding buyers about abiding by competition law e.g. never asking suppliers about other retailers’ plans or retail prices.

Following agreement and publication I have monitored the extent to which Retailers’ internal processes, guidance and training reflect the 7 Golden Rules. I have also monitored where relevant the target and actual time taken by Retailers to acknowledge, substantively respond to, and implement agreed CPI requests.

In my 2022 survey, 26% of suppliers reported that in the previous 12 months they had experienced a refusal to consider a CPI or an unreasonable delay in implementing an agreed CPI. In 2023, this had increased to 28%, but this increase was caused by responses related to an additionally designated Retailer. I believe that this stability in supplier concerns, despite an increase in CPI requests between 2022 and 2023, suggests my work on best practice has been effective. I intend to continue this work to reduce supplier risk (and perception of risk) in the context of CPI discussions with Retailers to facilitate efficient negotiation.

As the Code does not cover the price paid by Retailers to their direct suppliers, I have not sought to examine the level of prices agreed.

I shall continue to update you about my activity as GCA when I consider that it may be helpful in informing your work in the groceries sector.

Yours sincerely,

Mark White

Groceries Code Adjudicator