Christine Tacon, the Groceries Code Adjudicator (GCA), has ordered the Co-op Group to introduce “major changes to its governance, systems and processes” following a year-long investigation into the retailer’s treatment of suppliers.
She found the supermarket group had breached the Groceries Supply Code of Practice (GSCOP) on two counts. The retailer failed to provide reasonable notice to suppliers of decisions to de-list products and varied supply agreements unilaterally and without reasonable notice in the way it applied two specific charges.
The GCA launched the investigation in March 2018 after an 18-month period of discussions with Co-op during which the retailer accepted it was unable to get to the bottom of issues and could not demonstrate that it had taken remedial action in all the relevant circumstances.
Through interviews with suppliers and employees of the Co-op, Ms Tacon stated that she found the retailer had de-listed suppliers with no notice or short, fixed notice periods that were not reasonable in the circumstances. It applied standard notice periods which was contrary to the Code and her guidance which specify that notice of de-listing should be considered on a case-by-case basis.
The GCA found the retailer’s conduct in introducing depot quality control charges and benchmarking charges also breached the Code and she found this caused particular difficulties for suppliers with fixed-cost contracts as they would not be able to amend their cost prices to reflect the increased cost incurred when Co-op applied the charges.
Ms Tacon stated that weaknesses in training, policies and processes for buyers and the poor functioning of existing IT systems contributed to the retailer’s Code breaches.
She said: “The practices and behaviours described in my report were widespread. Systems, processes, business practices and the ability of different parts of the retailer to affect suppliers’ risks and costs of trading with the company all contributed to Co-op breaking the Code. At the core there was inadequate governance to oversee and manage Code compliance.
“The clear conclusion is that Co-op needs to take a very different approach to Code compliance. I have made robust recommendations for urgent action and I will be helping the retailer change its approach by monitoring closely how they implement those recommendations.”
The GCA revealed she has set down five recommendations for the Co-op to follow:
- Co-op must have adequate governance to oversee and manage its compliance with the Code;
- Legal, compliance and audit functions must have sufficient co-ordinated oversight of Co-op systems to ensure Code compliance;
- Co-op IT systems must support Code compliance;
- Co-op must adequately train on the Code all employees who make decisions which affect a supplier’s commercial arrangements with it; and
- Co-op must in any potential de-listing situation communicate with affected suppliers to enable the retailer to decide what is a significant reduction in volume and reasonable notice.
The GCA will monitor Co-op’s delivery against each of the recommendations and has requested an implementation plan within 4 weeks.
Ms Tacon commented: “My recommendations are focused on remedying the root causes of the issues I found and the weaknesses in Co-op’s systems and processes. They are a proportionate and effective measure to reduce the likelihood of future non-compliance by Co-op in these areas and I have decided not to use my fining powers in this instance.
“Ultimately, I launched this investigation to help Co-op to get things right for the future. The Co-op will, however, pay the full cost of the investigation and my costs in overseeing the implementation of the recommendations.”
Following the ruling, Jo Whitfield, Co-op’s Food Chief Executive Officer, said she has written to all Co-op suppliers to apologise and detail the business’ next steps to ensure it treats them fairly.
The retailer has already provided refunds to those impacted by the introduction of charges and is retraining over 1,000 staff to “embed a culture of Code compliance in line with its spirit and requirements.”
Whitfield said: “We are sorry. We’ve gone to great lengths to put these things right and have undertaken a root and branch review of all our supplier dealings.”
She added: “We were focussed on rescuing the Co-op and doing right by consumers but we should have also given more thought to the potential impact those planned changes would have on our suppliers.
“It is clear we tried to move more quickly than our systems, processes and people could handle.”
The Co-op stated it had now undertaken major changes to its governance processes and improved its systems. This includes the implemention a new supplier charter which outlines a simpler charging process, new policies and processes to ensure reasonable notice periods are given, supply agreements are recorded consistently, disputes are settled swiftly, and discrepancies are dealt with smoothly. It has also launched a dedicated financial helpline for suppliers to raise any queries.
Mark Jones, partner and food & drink expert at Gordons law firm, commented: “The Co-op was the first retailer to be investigated by the GCA since she acquired the power to fine retailers for breaching GSCOP so, even if it is disappointed to learn it has breached the code of practice, the business is likely to be pleased it has not been fined. Still £1.3m in costs is a heavy price to pay.
“The positives for suppliers is that retailer compliance with GSCOP is likely to improve as a consequence of the investigation. We saw further training demand and greater retailer compliance with GSCOP following the GCA’s investigation into Tesco and we should see the same this time around.”
NAM Implications:
- Problem identified, analysed and corrected…
- …with the promise of post-correction monitoring…
- …making it easier for suppliers to partner with the Co-op.
- A valued and important route to consumer…
- (coupled with a willingness by supplier-partners to report any future breach…
- …for the benefit of all stakeholders)
