KamLibrary - GSCOP - the New Buzzword with a Sting for the Underprepared

Strictly speaking, the new Groceries Supply Code Of Practice (GSCOP), which came into being on the 4th February 2010, deals with grocery products sold through grocery retailers with turnover of more than £1bn per annum. In practice, it is a template for all supplies of all categories via all retailers, and has significant implications for those outside mainline grocery channels.

It should also be borne in mind that the new legislation is aimed at protecting the consumer from overcharging, and is not intended as a means of protecting suppliers or retailers in their day-to-day dealings with third parties. It is therefore important that non-food suppliers and retailers use the new code as an opportunity to re-engineer their supplier-retailer trading partnership to optimise joint-profitability, as a basis encouraging repeat visits by satisfied shoppers.

Whilst some suppliers will soon become involved in the GSCOP process via their direct relationships with the major grocery retailers, non-food suppliers and retailers have an opportunity to incorporate key elements of the code of practice in anticipation of their appearance on the radar…

The full GSCOP document can be found on the Competition Commission website, and we have selected the following parts dealing with Prices & Payments, Promotions and Other Duties in order to identify possible applications in non-food retailing as a general guideline for readers. It is obviously crucial for businesses to seek legal advice on the full GSCOP document before taking any action.

Essentially, the GSCOP offers an opportunity for suppliers and retailers to re-assess their entire working relationships and trade partnerships, building a basis for fair share negotiation in the process. As an indicator of how far it goes, the new code brings in changes relating to supplier prices and payments, promotions, compensation for forecasting errors, supplier-retailer contracts, personal management of the seller-buyer process, and significant increases in record-keeping.

Prices and Payments:
A retailer must pay a supplier for products delivered to that retailer’s specification in accordance with the relevant Supply Agreement or supplier-retailer contract, and, in any case, within a reasonable time after the date of the supplier’s invoice. In other words, a retailer has to pay within the agreed credit period, and can no longer rely upon flexible extended credit as a source of ‘free’ funding. Moreover, the supplier does not have to pay for shrinkage arising from damage or products stolen from the retailer’s premises.

In addition, the supplier is under no obligation to contribute to marketing costs such as artwork or packaging design, consumer or market research, the opening or refurbishing of a store, or hospitality for that retailer’s staff.

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 products of that supplier within a store unless such payment is made in relation to a promotion.

Moreover, a retailer must not, directly or indirectly, require a supplier predominantly to fund the costs of a promotion. In other words, suppliers and retailers will need to be more specific about promotional timing, terms and conditions, and keep appropriate records.

Compensation for Forecasting Errors:
Given that the government believes that over-ordering can lead to wastage and retail price rises, a retailer must take all due care to ensure that when ordering products from a supplier at a promotional wholesale price, not to over-order. Also if that retailer fails to take such steps it must compensate that supplier for any products over-ordered and which it subsequently sells at a higher non-promotional retail price. Incidentally, this could spell the end of sale-or-return in many categories such as home entertainment, magazine, and newspaper retailing.

Supplier-Retailer Contracts:
Despite, or because of being the home of world class leading-edge retailers, the UK has lagged behind other countries in formalising supplier-retailer partnerships via legally binding supply contracts. The new code seeks to remedy that omission via the new Supply Agreement. In practice, this will be a detailed contractual record of agreement reached between the parties, enforceable in law. Again, it might be preferable for non-food suppliers to evolve such agreements with retailers by negotiation, in advance of the legislation.

Overall, the GSCOP represents a long overdue breakthrough in supplier-retailer relationships. Although focused initially on grocery supply, it is inevitable that the Code will eventually apply to all channels and categories. However, significant opportunities are available for those supplier-retailer partners that are willing to incorporate the key elements of the code into their trading agreements, to their mutual benefit.

Alternatively, why not await the imposition of a Government version of a non-food Code-of-Practice, and hope for the best?

KamTip: GSCOP as an opportunity to re-engineer the non-food supplier-retailer relationship…see Namnews March 2010

Date article published: March 2010

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