Groceries Supply Code Of Practice

New obligations imposed on supermarkets

In 2008 the Competition Commission reviewed the supply of groceries in the UK and reported that current supply chain practices were having an adverse effect on competition in the UK. To compensate for this, the Competition Commission produced the Groceries (Supply Chain Practices) Market Investigation Order. The Order will impose a Groceries Supply Code of Practice ("Code") on a predetermined list of supermarkets known as "Designated Retailers". The Designated Retailers include ASDA, Sainsbury's, Tesco, Marks and Spencer and six other dominant supermarket chains.

From 4 February 2010, the Designated Retailers must incorporate the Code into their agreements with suppliers of groceries. The term "groceries" includes: food, drink, financial services, pharmaceuticals, tobacco and household goods.

Key provisions in the Code

Some of the key provisions of the Code are as follows:

• The Code is subject to an overarching principle of fair dealing. Designated Retailers must always deal with suppliers both fairly and lawfully. In particular, the Code recognises that suppliers require certainty of the risks and costs in any supply agreement.
• All terms for the supply of groceries must be recorded in writing as well as any subsequent contractual arrangements.
• Designated Retailers must provide suppliers with certain information prior to entering into a supply agreement. This information includes, for example, the obligation on the Designated Retailer not to require actions by the supplier in relation to marketing costs, wastage, payments, promotions and changes to supply chain procedures.
• The terms of a supply agreement cannot be varied retrospectively.
• Designated Retailers must pay suppliers as dictated by the supply agreement and within a reasonable time.
• A supply agreement must not include provisions where the supplier is to make payment for shrinkage which occurs after delivery.
• Payment for wastage after delivery is only allowed where wastage is due to the negligence of the supplier and the basis of the payment is set out in the supply agreement.
• Designated Retailers cannot charge a supplier for better positioning of products (unless in relation to promotions).
• Designated Retailers cannot require a supplier to predominantly fund the cost of a promotion of the supplier's product.
• A supplier can only be de-listed for genuine commercial reasons. The supplier must be given reasonable notice prior to de-listing and have the right to have that decision reviewed.
• Any dispute which arises under the supply agreement should be negotiated in good faith between the parties, before referring the dispute to arbitration.

How can McGrigors help you?

We can help you:

• to understand the full provisions of the Code; and
• deal with any queries on the Code and guide you through your options in dealing with supermarkets in a way that will preserve your relationship with the supermarket.

For an initial and free discussion, please contact George Campbell, Director, Technology & Commercial on 0131 777 7058 or e-mail him at george.campbell@mcgrigors.com

George Campbell
Director, Technology & Commercial
Tel +44 (0)131 777 7058
Email george.campbell@mcgrigors.com