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.