Supermarkets will be given eight weeks to respond to a new probe by Adjudicator Christine Tacon after she found evidence that millions of pounds were changing hands with suppliers in return for better positioning on shelf, in potential breach of the Groceries Code.
The Grocer can reveal that Code Compliance Officers (CCOs) from all the major supermarkets have been summoned to a meeting with the Adjudicator next week and will be told they need to provide more transparency about negotiations, amid concern they could be breaching competition law.
The new probe comes as Tacon closed her year-long investigation into Tesco in which she concluded it acted in breach of GSCOP’s stipulations on payment delays (paragraph 5).
But while her investigation could not find evidence that Tesco “directly required suppliers to make payments to secure better positioning or increased allocation of shelf space” (which is barred under paragraph 12 of the code) she found evidence of “a range of practices” that “may amount to an indirect requirement” and has promised to consult further, working in conjunction with the Competition Markets Authority (CMA).
“The arrangements appear to have the potential to have an adverse effect on competition through the acceptance of large sums of money from suppliers,” she said.
Tacon admitted there was a fine line between activities that were perfectly legal and those that breached the code. “I am aware suppliers will often have a superior understanding of their category to Tesco (or others of the retailers). Suppliers therefore propose solutions for product range and layout to maximise the return and satisfy customer demand. Efficiencies can benefit the retailers, suppliers and customers.”
However, there were disparities over what suppliers saw as the purpose of the sums, which often ran into “millions of pounds”.
“It was evident some suppliers were of the view that category captains were required to remain neutral in their analysis of the market. However, many also viewed category captaincy as a competitive advantage because of the increased knowledge of the category. Suppliers stated they paid for category captaincy because of the commercial and strategic benefits. Generally the suppliers appointed as category captains were the larger and better resourced suppliers.”
Tacon also found evidence that large suppliers were paying huge sums to influence range reviews that could potentially “price out” smaller companies. “The sums paid by suppliers were significant, with some amounting to hundreds of thousands of pounds. The majority of the suppliers paying to participate in range reviews were the larger suppliers,” said the report.
Tacon said she planned to widen the net to cover all the major supermarkets. “I am concerned about it but I didn’t feel I had enough [through the Tesco investigation] to interpret it for the whole sector,” she said.
“I have decide to launch a formal investigation with the sector, involving both retailers and suppliers, to help me reach a firm conclusion on whether these practices are acceptable.”
GCA’s ‘recommendations’ to Tesco
- Money owed must be paid according to terms agreed between Tesco and the supplier
- Tesco ordered to stop unilateral deductions from suppliers
- Tesco to give suppliers 30 days to challenge any proposed deductions, with deductions barred if challenged
- Tesco to correct any pricing errors within seven days of notification by a supplier
- Tesco must provided transparency and clarity in its dealings with suppliers
- Tesco staff be put through training on the findings