Who: The Groceries Supply Code of Practice Adjudicator (the “GCA”) and all the “designated retailers” subject to the Groceries Code (currently Aldi, Asda, Co-operative Group, Iceland, Lidl, Marks & Spencer, Morrison’s, Sainsbury’s, Tesco and Waitrose, but this list can change)
When: 6 April 2015
Law stated as at: 1 April 2015
The Groceries Supply Code of Practice (the “Groceries Code”) was established by the Competition Commission in 2008 to deal with concerns that big supermarkets had unfair power over their suppliers.
On 6 April 2015, The Groceries Code Adjudicator (Permitted Maximum Financial Penalty) Order 2015 came into force. This gives the GCA the power to fine designated retailers up to 1% of their annual UK turnover. This change will protect suppliers by ensuring a greater balance of power between the designated retailers and suppliers.
Then Business Secretary Vince Cable described this as the “important final step [which] will give the Groceries Code Adjudicator the power it needs to address the most serious disputes between the large supermarkets and their direct suppliers.”
The change will apply to breaches that occur on or after 6 April 2015. Here is a recap of the key Groceries Code provisions that impact promotions:
1. Definition of “Groceries”
The Groceries Code applies to food, pet food, alcoholic and non-alcoholic drinks, cleaning products, toiletries and household goods. It expressly excludes pharmaceuticals, newspapers, magazines, greetings cards, CDs, DVDs, toys, flowers, cosmetics, electrical appliances, books and tobacco amongst other products.
2. Definition of “Promotion”
The Groceries Code broadly defines a “Promotion” as “any offer for sale at an introductory or a reduced retail price, whether or not accompanied by some other benefit to consumers, that is in either case intended to subsist only for a specified period”.
3. Provision 9: ‘Limited circumstances for payments as a condition of being a supplier’
Suppliers should not pay retailers to stock their products unless the payment is for a Promotion or in relation to a product that has not been stocked by in 25% or more of the retailer’s stores in the previous years (such as a newly launched product), provided that payment is a reasonable estimated of the retailer’s risk).
4. Provision 12: ‘No payments for better positioning of goods unless in relation to Promotions’
Retailers cannot ask suppliers to pay for a better position or more shelf-space in store unless the payment is for a Promotion.
5. Provision 13: ‘Promotions’
Firstly, suppliers should not fund the majority of the costs to run a Promotion. Secondly, a retailer must give a supplier “reasonable notice” (which depends on individual agreements) if it requires the supplier to pay for a Promotion of the supplier’s products. This means that a retailer must not run a Promotion and then demand payment from the supplier retrospectively.
6. Provision 14: ‘Due care to be taken when ordering for Promotions’
A retailer should not over-order products that a supplier is offering at a promotional price. The retailer must compensate the difference of the promotional and normal/non-promotional wholesale price to the supplier if it over-orders products at a promotional price. Retailers must also be transparent about the basis of assessing the quantity of promotional products being ordered.
Why this matters:
The introduction of the penalty provisions is the essential final step to increase the prospects of repercussion for serious breaches. The designated retailers all have UK turnovers exceeding £1 billion, which potentially results in the GCA imposing fines of up to £10 million for Groceries Code breaches.
Therefore, Monday 6 April 2015 was a key date for the designated retailers, who must henceforward take even greater care in their daily dealings with their suppliers.