Feb 17 2003

The OFT is to conduct a review of the Supermarkets Code of Practice, one year after it came into effect.
The Code followed a Competition Commission report in October 2000, which recommended a code of practice to put relations between supermarkets and their suppliers on a clearer and more predictable basis.
The OFT is today writing to a wide variety of suppliers' organisations and the supermarkets themselves. The OFT is asking for views on the Code and how it has been working in practice. Responses have been requested by 28 March.
DTI

CODE OF PRACTICE ON SUPERMARKETS' DEALINGS WITH SUPPLIERS

 
HAVING REGARD TO the Fair Trading Act 1973;
 
HAVING REGARD TO the Supermarkets Report of the Competition
Commission;
 
RECOGNISING that:
 
(a) a competitive market is the most effective way of protecting
  the interests of UK consumers;
 
(b) in a free and fair market place, the Supermarkets compete with
  each other in the level of service, quality of product and value
  for money that they offer to UK consumers; and
 
(c) it is in the interests of UK consumers that Supermarkets should
  constantly seek to improve their operating efficiency.
 
WHEREAS:
 
(a) The Competition Commission has recommended that a code of
  practice should be introduced to put relations between Supermarkets
  and their Suppliers on a clearer and more predictable basis.
 
(b) The Competition Commission found that the undue exercise of
  buyer power by Supermarkets in the circumstances identified in the
  Supermarkets Report has effects which are against the public
  interest.
 
(c) The Director, following consultation with the Supermarkets, has
  devised this Code of practice to meet the concerns of the
  Competition Commission without wishing to inhibit mutually
  beneficial arrangements genuinely entered into by Supermarkets and
  their Suppliers.
 
(d) The effective operation of this Code depends upon both the
  Supermarkets and their Suppliers being reasonable in their dealings
  with each other.
 
(e) The Director expects that the dispute resolution procedure
  provided for in this Code will be effective and that mediation is
  the most appropriate way of resolving disputes arising under the
  Code.
 
(f) The Supermarkets are fully committed to the objectives of this
  Code and undertake to operate under this Code in good faith.
 
NOW THEREFORE this Code has effect:
 
PART 1 - STANDARD TERMS OF BUSINESS
 
Terms of business to be available in writing
 
1  The terms of business offered by a Supermarket for its dealings
  with a Supplier shall be available in writing at the request of
  that Supplier such that:
 
(a) the standard terms of business offered to all Suppliers, or to
  all Suppliers in a particular category, shall be available at the
  request of any Supplier in that category; and
 
(b) the particular terms of business offered to any one Supplier
  shall be available at the request of that Supplier.
 
2  Reasonable Notice of variation of a Supermarket's terms of
  business shall be given to the affected Supplier(s).
 
No undue delay in Payments
 
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.
 
PART 2 -  PRICES & PAYMENTS
 
No retrospective reduction in price without Reasonable Notice
 
4  A Supermarket shall not directly or indirectly require a
  Supplier to reduce the agreed price of or increase the agreed
  discount for any product unless Reasonable Notice of such
  requirement is given to that Supplier in writing before the
  relevant supplies of that product are made.
 
No obligation to contribute to marketing costs
 
5  A Supermarket shall not, directly or indirectly, Unreasonably
  Require a Supplier to make any Payment towards that Supermarket's
  costs of:
 
(a) buyer visits to new or prospective Suppliers;
 
(b) artwork or packaging design;
 
(c) consumer or market research;
 
(d) the opening or refurbishing of a store; or
 
(e) hospitality for that Supermarket's staff.
 
No Payments for lower profits unless the basis of Payment is agreed
in advance
 
6  A Supermarket shall not directly or indirectly require a
  Supplier to make any Payment to compensate that Supermarket when
  profits from the sale of that Supplier's products are lower than
  expected by that Supermarket unless the basis of any such Payment
  is agreed in writing between that Supermarket and that Supplier
  before the relevant supplies of that product are made.
 
No Payments for wastage without prior agreement, negligence or
default
 
7  A Supermarket shall not directly or indirectly require a
  Supplier to make any Payment to cover any wastage of that
  Supplier's products incurred at that Supermarket's stores unless:
 
(a) such wastage is due to the negligence or default of that
  Supplier; or
 
(b) the basis of such Payment is agreed in writing between that
  Supermarket and that Supplier before the relevant supplies of that
  product are made.
 
8  A Supermarket shall use its best endeavours to agree in writing
  with a Supplier what principal factors in their dealings would be
  likely to amount to negligence or default on the part of that
  Supplier.
 
Limited circumstances for lump sum payments as a condition of being a
Supplier
 
9  A Supermarket shall not directly or indirectly require a
  Supplier to make any lump sum payment as a condition of stocking or
  listing that Supplier's products unless either:
 
(a) such payment is made in relation to a Promotion; or
 
(b) such payment:
 
(i) is made in respect of new products which have not been stocked,
  displayed or listed by that Supermarket during the preceding 365
  days in 25pct or more of its stores; and
 
(ii) reflects a reasonable estimate by that Supermarket of the risk
  run by that Supermarket in stocking, displaying or listing such new
  products.
 
No lump sum payments for better positioning of goods unless in
relation to Promotions
 
10  A Supermarket shall not directly or indirectly require a
  Supplier to make any lump sum payment in order to secure better
  positioning or an increase in the allocation of shelf space for any
  products of that Supplier within a store unless such payment is
  made in relation to a Promotion.
 
PART 3 - PROMOTIONS
 
No Promotions without Reasonable Notice
 
11  Where a Supermarket directly or indirectly requires any Payment
  from a Supplier in support of a Promotion of one of that Supplier's
  products, a Supermarket shall only hold that Promotion after
  Reasonable Notice has been given to that Supplier in writing.
 
Due care to be taken when ordering for Promotions
 
12  A Supermarket shall take due care when ordering products from a
  Supplier at a promotional wholesale price not to over-order, and,
  if that Supermarket fails to take such care, it shall compensate
  that Supplier for any product over-ordered and which it
  subsequently sells at a higher non-promotional retail price.
 
13  A Supermarket shall ensure that the basis on which any order
  for a Promotion is calculated is transparent.
 
Suppliers not predominantly to fund Promotions
 
14  A Supermarket shall not, directly or indirectly, Unreasonably
  Require a Supplier predominantly to fund the costs of a Promotion.
 
PART 4 - COMPENSATION
 
No change to supply chain procedures without Reasonable Notice or
compensation
 
15  A Supermarket shall not directly or indirectly require a
  Supplier to change significantly any aspect of the normal supply
  chain procedures unless that Supermarket either:
 
(a) gives Reasonable Notice of such change to that Supplier in
  writing; or
 
(b) fully compensates that Supplier for any net resulting costs
  incurred as a direct result of the failure to give Reasonable
  Notice.
 
No change to specifications without Reasonable Notice or compensation
 
16  A Supermarket shall not directly or indirectly require a
  Supplier to change the specification (including the quantity of
  products required) of any agreed order unless that Supermarket
  either:
 
(a) gives Reasonable Notice of such change to that Supplier in
  writing; or
 
(b) fully compensates that Supplier for any net resulting costs
  incurred as a direct result of the failure to give Reasonable
  Notice.
 
Limited circumstances for compensation for erroneous forecasts
 
17  Notwithstanding clauses [15] and [16] above, a Supermarket
  shall fully compensate a Supplier for any cost incurred by that
  Supplier as a result of any forecasting error attributable to that
  Supermarket unless:
 
(a) that Supermarket has prepared those forecasts in good faith and
  with due care; or
 
(b) there is an agreement in writing between that Supermarket and
  that Supplier before the relevant supplies of the product are made
  that such compensation is not appropriate.
 
18  A Supermarket shall ensure that the basis on which it prepares
  any forecast is transparent.
 
PART 5 - CONSUMER COMPLAINTS
 
No unjustified Payment for consumer complaints
 
19  Subject to clause [21] below, where any consumer complaint can
  be resolved in store by a Supermarket refunding the retail price or
  replacing the relevant product, that Supermarket shall not directly
  or indirectly require a Supplier to make any Payment for resolving
  such a complaint unless:
 
(a) the Payment does not exceed the retail price of the product
  charged by that Supermarket;
 
(b) that Supermarket is satisfied on reasonable grounds that the
  consumer complaint is justifiable and attributable to a failing on
  the part of that Supplier; and
 
(c) that Supermarket gives notice to that Supplier of such
  complaint.
 
20  Subject to clause [21] below, where any consumer complaint
  cannot be resolved in store by a Supermarket refunding the retail
  price or replacing the relevant product, that Supermarket shall not
  directly or indirectly require a Supplier to make any Payment for
  resolving such a complaint unless:
 
(a) the Payment is reasonably related to that Supermarket's costs
  arising from that complaint;
 
(b) that Supermarket has verified that the consumer complaint is
  justifiable and attributable to a failing on the part of that
  Supplier; and
 
(c) a full report about the complaint (including the basis of the
  attribution) has been made by that Supermarket to that Supplier.
 
21  A Supermarket may agree with a Supplier an average figure for
  Payments for resolving such complaints as an alternative to
  accounting for complaints individually.
 
PART 6 - THIRD PARTY DEALINGS
 
No tying third party goods and services for Payment
 
22  A Supermarket shall not directly or indirectly require a
  Supplier to obtain any goods, services or property from any third
  party where that Supermarket obtains any Payment for this
  arrangement from any third party, unless the Supplier's alternative
  source for those goods, services or property:
 
(a) fails to meet the objective quality standards laid down for
  that Supplier by that Supermarket for the supply of such goods,
  services or property; or
 
(b) charges more than any other third party recommended by that
  Supermarket for the supply of such goods, services or property.
 
PART 7 - STAFF TRAINING
 
Obligatory training for buyers
 
23  A Supermarket shall supply a copy of this Code to all Grocery
  buying staff.
 
24  A Supermarket shall provide training on the requirements of
  this Code to all Grocery buying staff.
 
25  A Supermarket shall furnish to the Director an annual return
  detailing staff training and guidance issued in relation to this
  Code in such form and on such days as the Director may specify from
  time to time.
 
PART 8 - GENERAL
 
Compliance and Dispute Resolution
 
26  A Supermarket shall negotiate in good faith with a Supplier to
  resolve any dispute arising under the terms of this Code.
 
27  If bi-lateral negotiations under clause [26] above cannot
  resolve a dispute within 90 days of that dispute arising, a
  Supermarket shall at its own expense offer the services of the
  Mediator to assist.
 
28  If the Mediator under clause [27] above has failed to resolve a
  dispute, the Supermarket shall give notice to the Director.
 
29  A Supermarket shall notify the contact details of any Mediator
  to the Director.
 
30  A Supermarket shall procure the Mediator to supply to the
  Director:
 
(a) an annual return of its work under this Code in such form and
  on such days as the Director may specify from time to time; and
 
(b) such other information as the Director may specify from time to
  time in relation to individual cases on which the Director is
  considering taking action.
 
Interpretation
 
31  For the avoidance of doubt, compliance with this Code does not
  affect the duty on any person to comply with or restrict the
  application of the Competition Act 1998.
 
32  In this Code:
 
 'the Director' means the Director General of Fair Trading;
 
 'Groceries' are products sold from any retail store in the United
  Kingdom and include food, pet food, alcoholic and non alcoholic
  drinks, cleaning products, toiletries (dental care products, soap,
  hair care, sanitary protection, nappies and similar products) and
  household goods (tissues, kitchen rolls, food wraps, bin liners,
  light bulbs and similar products) but exclude food and alcoholic
  and non alcoholic drinks sold for consumption in the store where it
  is purchased, petrol, clothing, DIY products, financial services,
  pharmaceuticals, newspapers, magazines, greetings cards, compact
  discs, video and audio tapes, toys, plants, flowers, perfumes,
  cosmetics, electrical appliances, kitchen hardware, gardening
  equipment, books, tobacco and tobacco products and Grocery means
  any one of them;
 
 'Group of Interconnected Bodies Corporate' has the meaning given in
  section 137(5) of the Fair Trading Act 1973;
 
  'the Mediator' means such independent person or persons as shall be
  appointed by a Supermarket under clause [27] above from time to
  time to provide mediation services;
 
  'Payment' or 'Payments' includes an inducement in any form
  (monetary or otherwise) and includes better contractual terms;
 
  'Person' includes a body of persons corporate or unincorporate;
 
  'Promotion' means any offer for sale at an introductory or a
  reduced retail price, or with some additional benefit to consumers
  that is intended to be only for a specified period;
 
  the meaning of 'Reasonable Notice' in clauses [2, 4, 11, 15 or 16]
  depends on the circumstances of each case including, for example:
 
(a) whether the notice period given is objectively justifiable and
  this depends on the circumstances of each case including, for
  example:
 
(i) the duration of any relevant contract or the frequency with
  which orders are placed by the Supermarket for relevant Groceries;
 
(ii) the characteristics of the relevant Groceries and their
  production including durability and dependency on external factors
  such as the weather;
 
(iii) the value of any relevant order relative to the turnover of
  the Supplier in question; and
 
(iv) the overall impact on the business of the Supplier of the
  information given in the notice;
 
(b) whether the reasons for the notice period given are
  transparent; and
 
(c) whether similar cases are treated alike;
 
  'the Supermarkets Report' means the report of the Competition
  Commission on the supply of Groceries from multiple stores in the
  United Kingdom presented to Parliament in October 2000 (Cm 4842);
 
  'Supermarkets' means all retailers of Groceries with 8pct or more
  of the market for the purchase of Groceries for resale from their
  stores in the United Kingdom and 'Supermarket' means any one of
  them;
 
  'Supplier' means any Person actually or potentially carrying on a
  business in the supply of Groceries to any Supermarket, such Person
  being established anywhere in the world but, in relation to any
  Supermarket, excludes any Person which is a member of the same
  Group of Interconnected Bodies Corporate as that Supermarket; and
 
  'Unreasonably Require' in clauses [5] and [14] excludes a case
  where a Supplier genuinely volunteers to make a Payment in response
  to ordinary commercial pressures, provided that, where those
  pressures are partly or wholly attributable to a Supermarket, they
  shall only be deemed to be ordinary commercial pressures where they
  are objectively justifiable, transparent and result in similar
  cases being treated alike.