Food for thought in quest for retail code

The final hearings in a protracted process aimed at introducing a code of conduct for grocery retailers accused of manipulative dealings with suppliers will take place tomorrow. In a consumer society where supermarket shelf-space is so often the oxygen of a food business, many claim to be at the mercy of punitive deals that make them shoulder the greater financial risk.

There are several examples of how this works but suppliers, who fear being “delisted”, or excluded from the shelves, are reluctant to discuss them openly.

And yet retrospective price increases on LTAs (long-term agreements) and other devices to help stymie supermarket losses are the sector’s worst-kept secrets.

Some suppliers say they must help pay for wastage and marketing; others that they are left with no choice but to agree to in-store specials on products even where the retailer maintains its margin and so incurs less loss as a result of its own promotion.

A voluntary code of conduct for retailers has now passed its sell-by-date; in its place, proposed statutory regulations will control how such deals are done in the future.

Suppliers will welcome clarity while retailers will lament an era of unbridled competitive practice which they see as crucial to a viable industry supporting employment.

The Department of Jobs, Enterprise and Innovation says the issue has been a matter of debate across Europe but "at national level, the Programme for Government includes a commitment to enact legislation to regulate certain practices in the grocery goods sector".

A forthcoming bill designed to merge the National Consumer Agency (NCA) and Competition Authority is to include an "enabling provision" that will allow these regulations, which have already been drafted and published, to be tackled. It is expected by September. It aims to "strike a fair balance between the competing interests of the various stakeholders" in the groceries sector, and the consumer.

Meanwhile, the Oireachtas Committee on Agriculture, Food and the Marine is considering the submissions of key industry players and will then come to its own conclusion, probably in the autumn. It is expected to support a statutory code.

So far the committee has heard from a number of supermarkets, the representative organisations RGData and Retail Ireland, the Irish Farmers Association (IFA), suppliers lobby Food and Drink Industry Ireland (FDII) and several organisations representing the milk sector.

Final submissions will be taken tomorrow from the Competition Authority and the NCA.

Committee chairman Deputy Andrew Doyle acknowledges concerns over a "trend where the dominant retailers are in a position to keep favourable terms for themselves at everyone else's expense".

“There has been evidence, in one case recently, where suppliers were being asked to give money to cover loss and damage when that is already meant to be worked into the contract,” he says. “Ultimately the motto is fair trade.”

But there are those who remain opposed. Retail Ireland, the Ibec-affiliated representative body with some 3,000 shops including supermarkets, told a committee hearing last March that the debate must be set against a background of “depressed consumer demand” and job losses–- since 2008 there have been over 50,000 and plenty of businesses have closed.

Chairman Frank Gleeson said the organisation had objected to the notion of a code when it was set out in 2009.

“We did so for several reasons. The rationale for the code has not been demonstrated and the code is not justified by any identifiable consumer benefit,” he said.

“More important, the Competition Authority has already stated that the retail sector is competitive. The code, as presented, would have inhibited legitimate commercial behaviour that benefited the consumer. In addition, the code would add an unnecessary regulatory and cost burden that would ultimately be borne by consumers and retailers.”

Instead, Retail Ireland points to the Competition Act 2002 which, it says, already “prohibits or prevents the compelling or coercing of payment or allowances for the advertising or display of goods and ‘hello money’ in regard to new or extended retail outlets under new ownership.”

Tellingly, says Mr Gleeson, there have been no consequent legal actions.

Retail Ireland’s admiration lies instead with a similar but voluntary European code currently gathering signatories.

“The only organisations that would benefit from a national code would be those suppliers and processors in the middle of the supply chain, not the consumers at one end or the farmers at the other. It is vital that this fact is recognised.”

RGData represents about 4,000 independent retailers and supermarkets, more than one third of the retail grocery market, and supports the introduction of a code.

"Our members play a significant role in their local communities. They provide 90,000 jobs and, collectively, contribute an estimated €3.6 billion to the economy," director general Tara Buckley told the committee at the same hearing.

“RGData is supportive of a statutory code of conduct for the grocery goods sector and rejects the contention by some of the larger retailers operating in Ireland that no code can be introduced to the retail grocery sector in Ireland before any EU-wide initiatives.”

Ms Buckley described the relationship between suppliers and the large multiples as “unbalanced”, and invoked “a need for some independent, enforceable code around which sustainable, respectful and commercial relations can be built”.

Paul Kelly, director of Food and Drink Industry Ireland (FDII), the Ibec-affiliated umbrella group for suppliers, says he is anxious to see a bill published.

“It’s very, very important; it causes problems for suppliers from a cashflow and business planning perspective and it squeezes the margins on food producers, so it stops companies from reinvesting,” he says.

“I think there is very clear evidence that it has a very negative impact on the performance of the sector.”

FDII says efforts to bring in a voluntary code in the past floundered and ultimately failed. The two big issues that, it believes, need to be resolved are the practices of retrospective charges and “excessive transfer of risk” where the cost of product marketing is borne largely by the supplier.

As for retailers’ reticence: “They have been quite clear they are not in favour of the statutory code for a variety of reasons, and we would offer that if they are engaged in fair-trading practices [then] they have nothing to fear.”