As the office of the GCA called on supplier feedback into the probe, the Co-op Group said in a statement: “We acknowledge that we have fallen short and have been discussing the two issues raised with the GCA for some months. We have already taken decisive steps in line with our commitment to ensure the fair treatment of all of our suppliers.
“The actions we have taken include:
- Steps to strengthen our systems and processes for the future
- Retraining of 450 commercial colleagues in the operation of the Groceries Supply Code of Practice
- Writing to all of our 1,500 direct suppliers to seek information on any delisting decisions that they believe may have been taken without appropriate consultation. A small number of suppliers have raised concerns, which we are working through with them.
- Reviewing every case where a supplier was charged for benchmarking and quality control. As a result 110 suppliers have been refunded a total of approximately £500,000. We have communicated in detail with suppliers to explain where and when these charges should be applied.
‘Sorry’
“We care deeply about our relationships with our suppliers and we are very sorry that in these two areas we have failed to live up to our usual high standards,” said Co-op Food chief executive Jo Whitfield. “We are already addressing the issues with the GCA and our suppliers and we hope the investigation will help bring to light any additional cases so that we can put these right as quickly as possible.”
The office of the GCA said matters under scrutiny related to de-listing and the introduction of benchmarking and depot quality control charges over a period from early 2016 to at least summer 2017.
A GCA spokeswoman told Food Manufacture: “We are not saying retailers can't delist, but there has to be proper notice and it has to be on a case-by-case basis.”
Considerations that also needed to be accounted for in cases of delisting included how longstanding the supply arrangement had been. For example, a company supplying a retailer for 20 years might reasonably expect longer notice. In addition, it might be reasonable for fresh produce suppliers dealing with long growing cycles to be informed of delisting in good time.
Benchmarking issues would revolve around testing one product against another or testing for quality characteristics.
For those on fixed contracts, changing contract terms outside the normal negotiating period might also be considered unreasonable.
The office of the GCA said it had decided an investigation was necessary to understand the extent to which the code might have been broken and the root causes of the issues, as well as their impact on suppliers.
The GCA said it now needed more information from direct suppliers and others to determine whether the code has been broken and, if so, what further action to take.
It has called for evidence to be submitted by 4pm on 3 May 2018.
Focus of investigation
The investigation will focus on:
- Paragraph 16 of the Code: Duties in relation to delisting; and
- Paragraph 3 of the Code: Variation of supply agreements and terms of supply.
When considering issues in relation to these paragraphs of the Code, the GCA will also be looking at Paragraph 2 of the Code: Principle of fair dealing.
In particular, the investigation will consider the extent, scale and impact of practices which may have resulted in suppliers being delisted with no, or short, fixed notice periods unilaterally imposed by Co-operative Group Limited without due consideration of published GCA delisting guidance.
‘Right Range, Right Store’
The focus will be in relation but not limited to decisions taken between summer 2016 and summer 2017 as part of a project called ‘Right Range; Right Store’.
The investigation will also consider the extent, scale and impact of practices which may have resulted in the introduction of charges without reasonable notice to suppliers.
This will include, but will not be limited to, the introduction of depot quality control and benchmarking charges to suppliers, especially those with fixed-cost contracts.
In addition, the GCA aims to consider the retailer’s Code-related training for its buyers and the culture contributing to the retailer’s approach to Code compliance.
‘Collaborative approach’
“I have previously escalated my concerns with the Co-op as part of my published collaborative approach,” said the GCA Christine Tacon.
“However, after carefully considering all the information submitted to me, I have decided that an investigation is necessary, so I can fully understand the extent to which the Code may have been broken and the root causes of the issues that have been raised with me.
“It is now important that suppliers provide me with information to help my investigation. I am looking forward to hearing what they have to say about whether they have experienced any of the issues now being investigated and, if so, the impact on them of the Co-op’s conduct. All information I receive will be treated with complete confidentiality.”
Anyone with relevant evidence should contact enquiries@gca.gsi.gov.uk. All submissions would be dealt with in the strictest confidence, said the GCA. It stressed that no identities of suppliers submitting evidence for the GCA’s investigation of Tesco became public.
It is impossible to determine how long an investigation into the Co-op Group could take, but the GCA probe into Tesco trading practices took just under a year to complete.
The GCA has the power to make recommendations to any retailer based on the conclusions of an investigation and also the power to impose fines of up to 1% of total turnover. Tesco did not face fines, because the GCA was only given that power after Tesco’s accounting scandal, to which the probe was directly related, came to light.
Food Manufacture also encourages any supplier with a story to tell to contact Food Manufacture at foodman@wrbm.com.