Trucks supply chain

Groceries Code Adjudicator Christine Tacon is poised to launch a new probe into supermarkets allegedly reneging on agreements with suppliers, after a big spike in incidents was reported in the past six months.

According to a new survey carried out by the British Brands Group (BBG), the problem has become the “number one” issue facing suppliers in their relationships with supermarkets this year.

Tacon has identified what she said is a possible link with the supposed shift from retailers, especially Tesco and Sainsbury’s, towards negotiations being based on “front margin” rather than “back margin.”

Although widely welcomed as bringing greater transparency to negotiations, the shift has meant in some cases massive sums of money, which would have previously been paid post-promotional activity, being paid upfront by suppliers in the form of so-called case costs. However, once the money is paid the agreed-upon promotions are not always run.

BBG director, John Noble, urged Tacon to intervene. “Retailers are not living up to their end of the bargain,” he said. “Poor retailer compliance to agreed activity has become the biggest issue according to suppliers.

“There is a definite GSCOP issue here.”

“What retailers are now doing is asking for all the ‘back margin’ to be put in to case cost or front margin,” said Ged Futter, a former veteran Asda buyer turned supplier negotiation expert.

“This in effect means that the retailers get the money regardless of whether they do the activity, although on the other side of the coin it also means though that if sales/volumes go backwards it costs the supplier less.”

Suppliers have traditionally agreed deals with retailers to finance promotions in-store, with some promotions keenly fought over by companies.

Futter says that, whereas in the past suppliers were being paid once promotions had taken place, they were now increasingly paying upfront.

“There has always been a big issue with compliance. It can take retailers months for new products to come on but suppliers are now looking at paying for this upfront and that’s why it’s becoming such a big issue.”

The report by the BBG comes with the Competition and Markets Authority (CMA), expected to report in September over its investigation into the lump sums demanded from suppliers by supermarkets in negotiations.

“What the likes of Tesco and Sainsbury’s have done is to say we’re not going to have that system of back margin and are saying give me the money up front,” said Futter. “They are effectively replacing one lump sum or overrider with an upfront payment for promotions.

“I don’t think it’s them playing a trick. They are wanting to shift the process of negotiation towards sales in store but the problem comes down to the issue of trust.”

Tacon announced at the GCA conference yesterday she was considering making the issue a “priority”

“I know that a lot of suppliers quite liked the back margin and if retailers are now putting everything into front margin there’s going to be inevitable concerns,” she said.

The adjudicator has launched similar probes in the past on areas such as forensic auditing and charges for consumer complaints.

He said supermarkets were in effect “retrospectively changing agreements” with suppliers. The BBG survey discovered concerns over the issue now came ahead of other possible Code breaches including lump sums, making unreasonable auditing claims, making deductions from trading accounts without agreement and suppliers being hit with unwarranted or excessive fines.