As the Competition Commission prepares to wade through an estimated 11 million emails, and thousands of phone calls, from Asda and Tesco and its suppliers, the inquiry appeared this week to have reached a pivotal moment. Has it found the smoking gun that will prove that multiples are mistreating suppliers? Andy Bond, CEO of Asda, told the Financial Times on Thursday he had "not spent a minute worrying about the latest apparently significant turn in the investigation. This [idea] that we robbed suppliers of lots of money and gave it to our customers is... rubbish." Yet sources close to the inquiry team confirmed that evidence shown to the Commission suggested "threatening and aggressive" demands for retrospective discount. If these allegations are found to be true it could have major ramifications for the two multiples and the entire grocery market. Retrospective discounts are not technically illegal, according to the Supermarkets Code of Practice, and are one of more than 100 trade investment techniques super­markets and suppliers use either to increase sales or profits, ideally for both parties. These comprise promotional items such as free samples, multipacks, point of sale fees or gate fees; or trade terms such as volume overriders, distribution allowances, EDLP funding, early settlement discounts etc. Not all these are covered by the Code; and the Code itself only covers the big four multiples, of course. But so far as Tesco and Asda are concerned, the Code only permits retrospective discounting if "reasonable notice" is given "in writing before the relevant supplies of that product are made". The Code does not mention payment for goods that have already been sold, however, an alleged practice by which, for example, a buyer discovers that it is paying a higher price or is receiving no discount despite higher volumes, and reissues an old invoice. In either form, many suppliers believe retrospective discounts favours only the retailers. "There is no reason [why] multiples [should] be able to demand retrospective payments after contract prices for products have been agreed," says the British Frozen Food Federation, which spoke out against retrospective pricing in its submission to the Commission. The listing fee is another controversial tactic (see 'Fair Trade?' box, left). "We have been asked for a listing fee from the multiples but have refused because we can't afford it or because we weren't offered anything concrete in return," one supplier told The Grocer. Earlier this month, Grant Thornton published a report claiming "unreasonable" behaviour of this kind is forcing suppliers out of business. Duncan Swift, head of its food agribusiness recovery group, believes the Code is "ineffective". A major problem with the Code is its use of the word "reasonable" in determining appropriate behaviour by the multiples. For example, "there is no definition of 'reasonable notice'," says Swift, "so there is no level playing field for suppliers and retailers." A source close to the inquiry admits the Code "gives a certain amount of leeway" and that "it is possible for a retailer to do some things that many suppliers believe to be grossly unfair but which would be within the Code". A further problem is that even where behaviour might be considered "unreasonable" there is no proof. In the Grant Thornton study nearly 25% of suppliers said they had orders cancelled or reduced within 72 hours yet 64% of suppliers operate without formal contract terms. The other much-cited reason for the lack of evidence has been fear: suppliers are loathe to complain to the OFT, or even challenge the supermarkets themselves. Aidan Bocci, chief executive of Commercial Advantage Consulting, believes there may be other reasons: "Suppliers use trade investment to incentivise consumers to shop." The notion they are not coming forward to talk about them because of supermarket pressure is not necessarily true, he says. It may be "because they don't want to tell everybody about their deals". Of course, with stronger brands, retrospective discounts and other trade investment practices may not be enforceable. Equally, for larger players, if they are accepted, they may not be the end of the world. It's the smaller players, lesser brands and own label, who are most vulnerable. "Hearing the words 'give me more margin or I'll delist you' if you're a small niche supplier where one retailer may account for 40% of your business, is terrifying," says one expert. And making trade investment all the more complex is that over the multiple deals must be laid a matrix comprising multiple SKUs across multiple multiples. "The variety of types of trade investment discounts causes a headache for any supplier," says Bocci. "They may sell anywhere between 100 and 10,000 SKUs with little clearly articulate logic behind how these discounts are agreed. This lack of structure makes it all the easier for a retailer to pick holes in arguments, spot inconsistencies within and across categories and drive yet more discounts."n Next week: how suppliers can protect themselves against trade investment demands. fair tradE? No trade investment practices are technically illegal but some are more controversial than others, depending on their interpretation Retrospective discounts: renewal of terms even though the contract period has not expired is allowed if 'reasonable' notice is given, though the Code does not appear to cover reinvoicing for previous sales Listing fees: these lump sums can come without any guarantee as to compliance levels Return allowances: suppliers report that fines often still exceed the price of the goods Buying windows: the discount for the supermarket may exceed the offer period Fines: minimum supply terms are sometimes enforced regardless of circumstance Contributions: support for store openings, charity donations or plain margins International trading agreements: suppliers may 'agree' to discount across all markets without guarantees of increased distributionSupermarkets Code of Practice 1 Standard terms of business offered to all suppliers, or all suppliers in a particular category, to be available in writing at the request of any supplier in that category. 2 Reasonable notice of variation of a supermarket's terms of business shall be given. 3 A supermarket shall pay a supplier for products delivered to that supermarket's specification within a reasonable time after the date of that supplier's invoice. 4 No retrospective reduction in price unless reasonable notice of such requirement is given in writing before the relevant supplies of that product are made. 5 No unreasonable obligation to contribute to marketing costs; for visits to new or prospective suppliers; artwork or packaging design; consumer or market research; the opening or refurbishing of a store; hospitality for supermarket's staff. 6 No payments for lower profits unless the basis of payment is agreed in writing in advance. 7 No payments for wastage without prior agreement, negligence or default unless agreed in writing before supplies of that product are made. 8 Principal factors that amount to negligence or default to be outlined in writing. 9 Lump sum payments as a condition of being a supplier to be limited to a) promotions or b) new products that have not been stocked/listed by that supermarket in 25% or more of its stores in the past year, the lump sum to reasonably reflect the risk to the supermarket. 10 No lump sum payments for better positioning of goods or an increase in shelf space allocation unless in relation to promotions. 11 No promotions without reasonable notice in writing. 12 If a supermarket fails to take such care when ordering for promotions, it must compensate the supplier for any product over-ordered that it subsequently sells at a higher non-promotional retail price. 13 Calculations for any promotion is ordered to be transparent. 14 Suppliers should not be unreasonably required to predominantly fund the costs of a promotion. 15 No change to supply chain procedures without either reasonable notice in writing, or compensation. 16 No change to specifications without either reasonable notice in writing, or compensation. 17 Supermarket to compensate suppliers for erroneous forecasts unless the supermarket acted in good faith, with due care; or if an agreement to forego compensation was made in writing before the relevant supplies were made. 18 The basis on which a supermarket prepares any forecast must be transparent. 19 No payment for consumer complaints above the retail price of the product and only if fault is attributable to the supplier and the supermarket notifies the supplier of the fault. 20 If a refund or product replacement is insufficient, the supermarket must verify that the fault is attributable to the supplier, notify the supplier of the fault and make reasonable payment. 21 An average figure for consumer complaint resolution payments may be agreed individually. 22 No tying third-party goods and services for payment unless the supplier's alternative fails to meet objective quality standards, or charges more than any other third party recommended by the supermarket. 23 All buying staff to receive a copy of the code from the supermarket. 24 Training for all grocery buying staff to be provided. 25 An annual return detailing staff training programmes in relation to the code to be provided to the director general of the Office of Fair Trading. 26 Any dispute arising under the terms of this code to be negotiated in good faith. 27 If a dispute is not resolved bi-laterally within 90 days the supermarket shall pay for independent mediation. 28 If the dispute is still unresolved, the supermarket must inform the OFT. 29 Contact details for the mediator to be provided to the OFT. 30 The mediator must supply to the OFT an annual return of its work and other information as specified.