Firstly, I am very sorry to hear that. In the cut-throat world of Supermarkets and their Suppliers, it is an inevitability that some Suppliers will be de-listed, yet it is never nice to hear and certainly worse to be part of. According to Moore Stephens, a top 10 accountancy firm, the number of food production companies that entered into insolvency in 2014 was up by 28%, which meant that 146 food producers lost their way. Understanding GSCOP certainly needs to form part of the decision making about how to deal with being de-listed. So secondly, I’d like to share with you information about GSCOP that will help.
As you know, in 2010 the UK government put into effect law regarding how Supermarkets work with their Suppliers. The law had been 15 years in the making with its roots back in 2001 when the Competition Commission conducted its first investigation into the Groceries market. Following that investigation a ‘Supermarket Code of Practice’ was born. Unfortunately it had ‘no teeth’ and it took another 9 years before ‘The Groceries (Supply Chain Practices) Market Investigation Order’, of which the ‘Groceries Supply Code of Practice (GSCOP)’, was a part, came into effect. This was then further strengthened by an ‘enforcer’. In 2013 a Groceries Code Adjudicator was appointed, Christine Tacon, with the objective of enforcing GSCOP and the power to fine Supermarkets up to 1% of their annual turnover for breaching the Code. For Tesco this fine could be up to £500m!
As part of the Order and the Code were written specific parts relating de-listing of suppliers. I believe that a supplier that is threatened with being de-listed needs to understand 4 key principles from those regulations.
Fair play must apply
A key principle was written into the Code that dealt with ‘fair play’. It says:
- ‘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 agreements, 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’.
The agreement must be in writing
Another key principle is that the agreement between the Supermarket and the Supplier must be in writing and include certain items, which are listed in GSCOP:
- ‘…A retailer must not vary any supply agreement retrospectively, and must not request or require that a Supplier consent to retrospective variations on any supply agreement’.
De-listing for genuine commercial reasons only
The third, and most key principle for de-listing, deals specifically with de-listing and splits into 5 parts; the Supplier can only be de-listed for commercial reasons, the supermarket must provide reasonable notice, provide the reasons for the de-list in writing, inform the supplier of their right to have the decision reviewed by a senior buyer, and allow the supplier to attend an interview with the Supermarket’s Code Compliance Officer. Plus, this must all be done before the de-list happens.
The new regulations give Suppliers a better structure to work with if they are threatened with de-listing. In fact a further 5 ‘bites at the cherry’ to ensure that the Buyer has made the ‘right’ decision:
- Genuine commercial reasons – Buyers are trained in GSCOP so they will know that genuine commercial reasons need to be given. Therefore price is likely to be the reason given. The challenge is that all the costs elements need to be included, from promotional funding, to marketing costs, to waste costs, etc. Ensure that the complete price picture is understood by the Buyer before they decide.
- Reasonable notice – This is a grey area and yet to be refined by the Code through a case study. Reasonable notice may need to take into account, for example, that some crops are planned a year in advance or that capital expenditure was made on the back of the security of supply.
- Reasons for de-listing in writing – Challenge for a more detailed set of reasons beyond ‘cost’. Is it cost across all products, costs all through the year, costs for promotions, etc.?
- Senior Buyer review – The review is an opportunity to make your best pitch as to how and why you can make money for the Supermarket.
- Code Compliance officer review – My experience of dealing with the CCO’s is that they are reasonable people that will take an objective view of the evidence. Provide the necessary evidence.
These are opportunities to make a sound case as to why you can make money for the Supermarket that no-one else can. Add to these ‘bites’, that should you feel as though the Code has been breached you can directly raise a dispute with the Supermarket Ombudsman, the Groceries Code Adjudicator.
Details of how to do this and a lot more about the GSCOP Code can be found in Darren’s new book – ‘A Complete Understanding of the Groceries Supply Code of Practice (GSCOP)’ –available for £9.95 – see here
Darren spent 12 years as a Category Manager/Trading Manager for one of the big four UK supermarkets. MBM enable suppliers to the big four supermarkets to secure more profitable wins. They are from your industry delivering People Development. Using their unique ‘Sticky Learning ®’ you too can have the best people for the long term.