GCA interpretative guidance on De-listing practice
1. This guidance is intended primarily to address questions about De-listing practice by retailers regulated by the Groceries Supply Code of Practice (the Code) and in particular, to assist interpretation of “significantly to reduce the volume of purchases made” and “Reasonable Notice”.
2. It may be used in planning De-listings, whether of single or multiple suppliers. Where De-listing is a result of range reduction or any comparable initiative by a retailer, the retailer’s general approach will need to be considered, as well as implementation (a) overall and (b) as experienced by individual suppliers. It will not be acceptable to adopt a “one-size-fits-all” approach. Communications with suppliers at both planning and implementation stages will be important, as will the authority given to individual buyers, Senior Buyers and Code Compliance Officers to negotiate on a case-by-case basis.
3. This guidance will also inform how the GCA will approach questions of De-listing arising in any arbitration.
4. This guidance is not intended to be exhaustive. Nor does it replace legal advice. Ideally, it would be used to inform conversations between retailers and suppliers when De-listing is being contemplated; and to help articulate reasons and objections at an early stage, before any formal dispute arises. It may help move discussions from resisting the possibility of De-listing to a meaningful dialogue about reasonable notice and payment in respect of it, when that is the likely outcome. Of course, business decisions carry risks for both retailers and suppliers, and this guidance should not be taken to mean that retailers essentially underwrite those that should properly rest with suppliers. Retailers will often not be aware of all the factors listed in paragraphs 7 and 9 below, and should a supplier make them aware of information such as the volume of their business resting with any particular retailer as a proportion of the supplier’s total, that does not make the retailer responsible for it. Each case will be different, depending on its facts.
The legislative framework
5. The Code sets out the legislative framework. Paragraph 16 of the Code sets out Duties in relation to De-listing. “De-list” is defined in paragraph 1 of the Code, and this is where the “significantly to reduce the volume of purchases made” wording appears. “Reasonable Notice” for the purposes of the Code generally is also defined in paragraph 1 of the Code. The definition is not claimed to be exhaustive, it simply sets out four elements which will need to be taken into account. These are set out at paragraph 9 of this guidance. Additional “Reasonable Notice” provision specifically related to De-listing is made at paragraph 16(2)(a) of the Code. This is set out at paragraph 8 of this guidance.
“Significantly to reduce the volume of purchases made”
6. The Code gives no clue as to what “significantly” might mean in this context. The only clarification provided is that “significantly” will be determined by reference to the amount of Groceries supplied by the particular supplier in question. It seems sensible, therefore, to apply its plain English meaning. This will in practice vary depending on the circumstances of each case, being inseparable from the context of the contractual relationship in which notice of De-listing is given.
7. Factors to consider include:
- Whether the Groceries supplied are branded or own-label;
- Whether the Supply Agreement is sole or exclusive to the retailer;
- Whether the Groceries supplied are a niche product;
- The speed, ease and extent to which the supplier can switch to supplying an alternative customer without loss of profit;
- The extent to which production of the Groceries by the supplier can be controlled (where relevant), e.g. it might be hard for a supplier of fresh produce to cease supplying without adequate notice; and
- Certain external and well-publicised factors affecting demand, e.g. horsemeat scandal. These may determine or significantly direct a retailer’s action, and the applicable timescales.
8. The Code states that “Reasonable Notice” in relation to De-listing will include providing the supplier with sufficient time to have the decision to De-list reviewed by the retailer’s Senior Buyer and to permit the supplier to attend a meeting with the retailer’s Code Compliance Officer to discuss the decision to De-list. It does not extend to the time taken to resolve any dispute which may subsequently be raised under Article 11 of the Groceries (Supply Chain Practices) Market Investigation Order 2009. See GCA dispute escalation guidance.
9. In addition, “Reasonable Notice” under the Code generally will include:
- The duration of the Supply Agreement to which the notice relates, or the frequency with which orders are placed under it;
- The characteristics of the Groceries supplied including durability, seasonality, and external factors affecting their production;
- The value of any relevant order relative to the turnover of the supplier;
- The consistency with which the retailer applies its De-listing policy; and
- The overall impact of the information given in the notice on the supplier’s business, to the extent that this is reasonably foreseeable by the retailer.
It will vary from case to case.
10. Additional factors to consider include:
- Other relevant contracting history or practice between the parties, e.g. changes in order size and frequency, changes in price per unit, changes in value or percentage of the supplier’s turnover earned from that retailer;
- For how long the supplier has supplied the retailer;
- The reasonable expectations of the parties;
- The length of time taken to produce the Groceries;
- Any relevant joint planning activity, including forecasting and projected return on investments made to innovate in the production of the Groceries; and
- Whether and when the supplier had been forewarned of possible De-listing or reduction in business with the retailer.
GCA November 2014