Brian Moore: I’m going to start by reflecting on your seven years in the GCA role and just wondered what your thoughts are re what you feel you have achieved, looking back?
Christine Tacon: I do feel that it’s achieved even more than I anticipated, particularly the impact of having an annual survey right from the start.
The Code Compliance Officers have played a key part in that progress. They aren’t allowed to be in the buying chain of command, and when I first spoke to them, I recognised they were not the ones that were doing anything wrong. So I thought about how do I engage with these people to make sure they understand there is an issue, so they will go back to the business, find out more about it and get it put right. And that was the basis of my collaborative approach.
BM: It was indeed a terrific platform for change in the industry. I was frankly astonished that politically you were allowed to do it. For instance, you were dealing with the biggest retailers in the country, very big employers. It was politically sensitive that you would cross them in any way given their ability to retaliate at higher levels in politics. Despite all of which it seemed to work.
CT: There was maybe some indication of that as it took 15 months for the Government to agree to my request for the maximum level of fine to be set at 1% of a retailer’s annual UK turnover.
BM: Another area to consider might be the idea of me as a supplier (say Ajax Holdings Ltd) talking to you and the fear that despite me trusting you personally, our conversation could somehow be made available to the retailer in question, and the possibility of retaliation.
CT: It never happened once, in 7.5 years. That was for two reasons: first, I never raised an issue with the retailer unless I heard it from at least a few suppliers and secondly, suppliers rarely provided hard evidence of a misdemeanour so I raised it as a general issue rather than specific.
BM: Knowing the industry in the sense of how breaches occurred in the past, familiarity with the power balance, all of which changed over the years, through your intervention, the possibility of being ‘named and shamed’ must have been a help. In fact, it was getting to a point where you could leave comfortably. You in fact have a template for future application of ‘GSCOP’ principles elsewhere.
I believe that lockdown has been so fundamental that it has changed everything, especially in supplier-retailer relations. In other words, we are almost back to the ‘bad old days’ of supplier-retailer relationships. Would you agree?
CT: I don’t agree at all actually, not at all. After March, when many retailers clearly delisted a lot of products over a very short period, I said I would stay on to deal with any repercussions from the first lockdown. But from my discussions across the sector, I found that retailers were working through the challenges with the suppliers, both parties focused on maintaining volume on the shelf to keep up with demand.
In practice, not many shoppers were buying the products that ended up being delisted; they were after staples. This worked well for suppliers and retailers who were mutually interested in getting the right products on the shelf at an increased volume; they talked about ways of dealing with the problems and reached mutually-agreed solutions. No cases of suppliers having an issue over that period were raised with me. In fact, many told me that the relationship was exemplary in that period.
We have now reached a point where the retailers are saying “we want to drive our prices down”. But the Code would never be able to protect suppliers from that however, the principle of reasonable notice of variations would come into play.
BM: It was always accepted that you would not be involved knee-deep in their price negotiations, anyway.
CT: The CMA would never have approved a Code allowing the regulator to get involved in pricing as the GCA’s role ultimately is to protect the consumer.
BM: Agreed, and good that you always stayed away from that issue.
CT: Other countries have been so focused on the pricing issue that they’ve ended up with no solution. We in the UK were able to focus on lots of different areas of the supplier-retailer relationship like ‘drop & drive’, and find solutions that were much more efficient for both parties, and save everybody money.
BM: The other issue, aligned with pricing, is payment. This was a source of potential misunderstanding from the beginning of your role. In other words, your focus was on retailers keeping to agreed payment periods rather than the issue of paying in a reasonable time.
CT: The retailers are exemplary in paying on time. If you put the retailers into one bloc, which I have done, and look at the Duty to Report figures, then of the ten original retailers covered by the Code between 93% and 100% of their invoices were paid on time. There were only 13% of the suppliers that supply the retailers that pay their suppliers over 93% on time.
BM: I agree that suppliers tend to be more in breach than retailers are. In practice, as you will know from your FMCG days, you are sat in front of the buyer and we are coming to the terms part of the discussion when the buyer explains ‘by the way our finance guys are insisting that we go to 90 days, net…’
CT: I am very aware that often the supplier is so excited to get the deal that they don’t realise what the terms are until it’s too late. I do like the fact that the EU Trading Practices Directive headlines 30 days payment for food and drink and indicates 14 days for fresh. However, I expect when the Directive gets into legislation, it may only be if not provided for in a contract!
BM: I agree, and the 14-day move was a great PR move by some retailers in the sense that we are “so kind to smaller players…”. This cost them relatively little.
CT: It also made them look really good on average payment terms in the Duty to Report figures; their averages will look great if they have masses of small suppliers being paid in 14 days and a few suppliers on ten times the turnover being paid in 30 days.
BM: Looking back, does anything stick out as being particularly difficult in the role?
CT: I don’t see anything that was particularly difficult, although systemic issues like ‘drop & drive’ took a long time. Some of the retailers had to put in completely new IT systems to resolve this. This was a huge sell in practice because real change had to occur.
BM: You obviously had to work the whole agenda around from supplier NAM and buyer, to involving other departments. In fact, it couldn’t have worked if you had not involved finance departments, logistics, and other functions etc. This helped them to see mutual benefits in collaboration rather than antagonism.
CT: Logistics experts Simply Supply Chain (Jonathan Kittow’s business) approached me when they read I was looking into Drop & Drive. They had a working group looking into this and provided me with data. At the outset, they knew that when an intermediary was used three out of 10,000 cases on average got lost but when it came to payments about 40 were reported as being short. The twenty suppliers in the working group said they were losing £15m per year in 2014. This degree of clarity was so valuable.
Some retailers engaged with the issue straight away but others struggled to establish systems to resolve it. At one point there were four retailers reported by The Grocer as “being in the last chance saloon”. But ‘Drop & Drive’ didn’t get to the point of an investigation because some simply said they wouldn’t charge for shortages, thus ensuring that an investigation was not necessary.
I can compare that with my decision to investigate the Co-op. When I was escalating issues raised with me, I felt they could not get to the bottom of them. We were having meetings but with limited progress, so I said there had to be an investigation.
BM: Part of the problem I suppose was with buyers changing roles very frequently, possibly to lower the chances of relationships building between Buyer and NAM.
CT: When I say the retailers were very good at paying on time, this was something that improved after the Tesco investigation particularly where there are disputes overpayments that can take too long to get resolved. One recommendation I made was to insist Tesco set up a Finance to Finance helpline that simply bypassed the normal trading relationship to get payment issues resolved – now all regulated retailers have something similar.
BM: Obviously we are familiar with the GCA role in terms of its coverage, but have any other aspects of the supplier-retailer relationship caused you to think they would benefit from government intervention, possibly via another GCA-type structure?
CT: Northern Ireland have pointed out that their retailers should have a lower cut off to be regulated. They say ‘over here we have two very large that each have a sales turnover of less than £1bn but have a huge impact on suppliers’.
In fact, that was something that really stood out for me: Have we really got all the retailers over a £1bn? Is £1bn turnover the right cut-off figure?
Clearly the EU has a Trading Practices Directive that goes all the way back to the farmgate. In my discussions, I have stressed that the relationship between farmers and processors is a separate issue to the one between retailers and their suppliers and you really need a separate mechanism. For instance, in dairy farming you don’t have forecasting issues.
From the farm gate, there are many factors affecting their ability to deliver or compete like weather/climate change, competitive imports and they just don’t have issues such as being charged for consumer complaints. The farmer-processor relationship could be handled by someone doing a similar job as the GCA, but we should not try to use the retailer/supplier regulation, designed to fit one set of relationships, to fit another very different one.
And farmers generally tell me they want a better share of the retail price, but I can’t see that happening as a result of a code.
BM: I understand that adding to the GCA role would not solve the problem. Equally lowering the £1bn level would not be a solution and might make the role unmanageable.
What I believe came out of your seven years in the role was a Code of behaviour that could be applied all the way down the scale of retailers in everybody’s interest.
CT: Perhaps the Code should become a British Standard? That’s how all businesses should behave.
BM: This then raises the issue as to what extent a government anywhere wants to get knee-deep in supplier-retailer dealings within what is meant to be an open market where stakeholders are meant to look after themselves and their interests?
This raises the question of the extent that online has radically affected UK business, not just Amazon but also Alibaba. To what extent has the GCA role been able to accommodate a radical change in market structures?
CT: I was able to resolve online issues I was told about via the Code. One example was Morrisons wanting to charge suppliers for their products to be sold online, but this is just a different channel and the Code doesn’t let them do that. Retailers can only charge listing fees for new products. Another issue I looked into was positioning online: what was to prevent retailers requiring suppliers to pay for their relative position as it appears to the consumer. In short, this is payment for shelf-positioning by another name which is also quite contrary to the Code. In fact, I found it quite easy to examine the Code and then interpret how this would apply to online.
BM: Because of the inevitable extra pressures arising from lockdown causing companies on the brink to fail, I believe we shall have a number of mega-mergers and takeovers. Although government might normally prevent such mergers, in the current circumstances where the loss of a major player could have serious consequences in terms of many employees losing their jobs, approval may be given. How will a GCA have to change in terms of say extra powers required to deal with a retailer twice the size of Tesco? Does size of retailer figure in your working relationship/power in dealing with bigger retailers?
CT: I was asked this during the Asda/Sainsbury merger discussions and replied that size of retailer does not affect the operation of the Code. The 1% of turnover fine is 1% of turnover. I got to a point where retailers of all sizes realised that the issues I was raising were generally to do with inefficiencies and sorting them out meant it was better for everybody.
BM: Lockdown has resulted in less staff, less expertise being required. Do these gaps in company structures make it easier or more difficult in your role when dealing with retailers?
CT: Suppliers have been telling me that buyers working at home are more accessible now, quite apart from not having to drive four hours for a 20-minute meeting with the buyer.
BM: Finally, will Brexit and a possibly open market mean a return to the ‘bad old days’ in supplier-retailer relationships?
CT: I believe that if Brexit results in a ‘no deal’, retailers will work closely with suppliers as they did in March and April to ensure a steady supply of product on the shelves. I believe there will be a focus on UK suppliers and working as closely as possible together.
BM: On balance, Christine, you are talking about seven years. What do you feel you and your role have delivered to this supplier-retailer relationship in the UK?
CT: I think I have demonstrated to the retailers that having a culture of compliance embedded in their business means they will have a better relationship with suppliers that leads to better solutions for everybody, including the consumer. I got to a point where retailers realised that issues I was raising were generally to do with inefficiencies and sorting them out was best for everybody. So we are no longer in an environment where retailers are asking themselves: ‘how do I avoid getting caught?’ and ‘how do I find a way around the Code?’ Retailers are realising that the Code can be good for the business.
Contact details: Christine Tacon
www.christinetacon.com
uk.linkedin.com/in/christinetacon
[email protected]
