GCA investigation of Co-op: De-listing of suppliers & concept of 'reasonable notice'

The Grocery Code Adjudicator (GCA) published their report into the investigation of the Co-operative Group Limited (Co-op) on 25 March.  

It was found the Co-op had breached paragraph 3 and 16 of the Code in applying ‘reasonable notice’ to delisting of suppliers. A series of recommendations have been made to the Co-op that it will need to publish an implementation plan to achieve within 4 weeks.

It was found the Co-op de-listed suppliers with no, or short, fixed notice periods that were applied unilaterally without due consideration of guidance and case by case issues of individual suppliers.The Co-op had applied standard notice periods in numerous instances without considering the particular circumstances of the product or supplier in question, they were therefore not ‘reasonable’.

• Paragraph 3 of the Groceries Supply Code of Practice (the Code) states: “If a Retailer has the right to vary a Supply Agreement unilaterally, it must give Reasonable Notice of any such variation to the Supplier.”
• Paragraph 16 of the Code states: “Prior to De-listing a Supplier, a Retailer must… provide Reasonable Notice to the Supplier of the Retailer’s decision to De-list.” 

Whilst not all suppliers were adversely affected on costs by the lack of reasonable notices, some were and some notice periods resulted in wastage and lack of efficiency and resources within the businesses concerned.

IT highlighted as a key failing

One of the main issues was found to be the absence of a central IT system that could be accessed by all relevant co-op employees who were dealing with suppliers. ‘Another particular problem was that the IT systems restricted the notice that could be given to Suppliers of distribution changes arising from the range review process. These systems did not allow consideration of what might be reasonable notice of any De-listing for a Supplier and effectively prevented Co-op from delivering on the notice periods set out in its own internal policy.’

Training and communication

Other failings summarised in the GCA report included lack of training within the buying team and lack of communication by Co-op with suppliers about decisions that might amount to delisting to allow them a right to respond.

Depot quality control and benchmarking charges 

It was found that that in some cases the Co-op did not provide sufficiently clear or detailed information to Suppliers about depot quality control charges and benchmarking charges to enable them to form reasonable estimates of the amount and frequency of the charges. Co-op buyers were not aware of the likely amount and frequency of these charges and were accordingly unable to give notice of them. 

Recommendations

The GCA found that although financial penalties were available it would be disproportionate at this stage.

Recommendations were as follows:

• Recommendation 1: Co-op must have adequate governance to oversee and manage its compliance with the Code.
• Recommendation 2: Co-op legal, compliance and audit functions must have sufficient co-ordinated oversight of Co-op systems to ensure Code compliance.
• Recommendation 3: Co-op IT systems must support Code compliance.
• Recommendation 4: Co-op must adequately train on the Code all employees who make decisions which affect a Supplier’s commercial arrangements with Co-op.
• Recommendation 5: Co-op must in any potential De-listing situation communicate with affected Suppliers to enable Co-op to decide what is a significant reduction in volume and reasonable notice.

The Co-op will need to provide a detailed implementation plan within 4 weeks setting out how it will comply with these recommendations.

Summary

This report underlies the importance of understanding the Code for both suppliers and retailers. It is crucial that IT, training and communication adequately reflects requirements and can adjust and take account of individual circumstances of suppliers. Further, depot quality control and benchmarking charges should be carefully considered, transparently and objectively applied and communicated.