Feb 17 2003The 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.
CODE OF PRACTICE ON SUPERMARKETS' DEALINGS WITH SUPPLIERSHAVING REGARD TO the Fair Trading Act 1973;HAVING REGARD TO the Supermarkets Report of the CompetitionCommission;RECOGNISING that:(a) a competitive market is the most effective way of protectingthe interests of UK consumers;(b) in a free and fair market place, the Supermarkets compete witheach other in the level of service, quality of product and valuefor money that they offer to UK consumers; and(c) it is in the interests of UK consumers that Supermarkets shouldconstantly seek to improve their operating efficiency.WHEREAS:(a) The Competition Commission has recommended that a code ofpractice should be introduced to put relations between Supermarketsand their Suppliers on a clearer and more predictable basis.(b) The Competition Commission found that the undue exercise ofbuyer power by Supermarkets in the circumstances identified in theSupermarkets Report has effects which are against the publicinterest.(c) The Director, following consultation with the Supermarkets, hasdevised this Code of practice to meet the concerns of theCompetition Commission without wishing to inhibit mutuallybeneficial arrangements genuinely entered into by Supermarkets andtheir Suppliers.(d) The effective operation of this Code depends upon both theSupermarkets and their Suppliers being reasonable in their dealingswith each other.(e) The Director expects that the dispute resolution procedureprovided for in this Code will be effective and that mediation isthe most appropriate way of resolving disputes arising under theCode.(f) The Supermarkets are fully committed to the objectives of thisCode and undertake to operate under this Code in good faith.NOW THEREFORE this Code has effect:PART 1 - STANDARD TERMS OF BUSINESSTerms of business to be available in writing1 The terms of business offered by a Supermarket for its dealingswith a Supplier shall be available in writing at the request ofthat Supplier such that:(a) the standard terms of business offered to all Suppliers, or toall Suppliers in a particular category, shall be available at therequest of any Supplier in that category; and(b) the particular terms of business offered to any one Suppliershall be available at the request of that Supplier.2 Reasonable Notice of variation of a Supermarket's terms ofbusiness shall be given to the affected Supplier(s).No undue delay in Payments3 A Supermarket shall pay a Supplier for products delivered tothat Supermarket's specification within a reasonable time after thedate of that Supplier's invoice.PART 2 - PRICES & PAYMENTSNo retrospective reduction in price without Reasonable Notice4 A Supermarket shall not directly or indirectly require aSupplier to reduce the agreed price of or increase the agreeddiscount for any product unless Reasonable Notice of suchrequirement is given to that Supplier in writing before therelevant supplies of that product are made.No obligation to contribute to marketing costs5 A Supermarket shall not, directly or indirectly, UnreasonablyRequire a Supplier to make any Payment towards that Supermarket'scosts 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 agreedin advance6 A Supermarket shall not directly or indirectly require aSupplier to make any Payment to compensate that Supermarket whenprofits from the sale of that Supplier's products are lower thanexpected by that Supermarket unless the basis of any such Paymentis agreed in writing between that Supermarket and that Supplierbefore the relevant supplies of that product are made.No Payments for wastage without prior agreement, negligence ordefault7 A Supermarket shall not directly or indirectly require aSupplier to make any Payment to cover any wastage of thatSupplier's products incurred at that Supermarket's stores unless:(a) such wastage is due to the negligence or default of thatSupplier; or(b) the basis of such Payment is agreed in writing between thatSupermarket and that Supplier before the relevant supplies of thatproduct are made.8 A Supermarket shall use its best endeavours to agree in writingwith a Supplier what principal factors in their dealings would belikely to amount to negligence or default on the part of thatSupplier.Limited circumstances for lump sum payments as a condition of being aSupplier9 A Supermarket shall not directly or indirectly require aSupplier to make any lump sum payment as a condition of stocking orlisting 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 365days in 25pct or more of its stores; and(ii) reflects a reasonable estimate by that Supermarket of the riskrun by that Supermarket in stocking, displaying or listing such newproducts.No lump sum payments for better positioning of goods unless inrelation to Promotions10 A Supermarket shall not directly or indirectly require aSupplier to make any lump sum payment in order to secure betterpositioning or an increase in the allocation of shelf space for anyproducts of that Supplier within a store unless such payment ismade in relation to a Promotion.PART 3 - PROMOTIONSNo Promotions without Reasonable Notice11 Where a Supermarket directly or indirectly requires any Paymentfrom a Supplier in support of a Promotion of one of that Supplier'sproducts, a Supermarket shall only hold that Promotion afterReasonable Notice has been given to that Supplier in writing.Due care to be taken when ordering for Promotions12 A Supermarket shall take due care when ordering products from aSupplier at a promotional wholesale price not to over-order, and,if that Supermarket fails to take such care, it shall compensatethat Supplier for any product over-ordered and which itsubsequently sells at a higher non-promotional retail price.13 A Supermarket shall ensure that the basis on which any orderfor a Promotion is calculated is transparent.Suppliers not predominantly to fund Promotions14 A Supermarket shall not, directly or indirectly, UnreasonablyRequire a Supplier predominantly to fund the costs of a Promotion.PART 4 - COMPENSATIONNo change to supply chain procedures without Reasonable Notice orcompensation15 A Supermarket shall not directly or indirectly require aSupplier to change significantly any aspect of the normal supplychain procedures unless that Supermarket either:(a) gives Reasonable Notice of such change to that Supplier inwriting; or(b) fully compensates that Supplier for any net resulting costsincurred as a direct result of the failure to give ReasonableNotice.No change to specifications without Reasonable Notice or compensation16 A Supermarket shall not directly or indirectly require aSupplier to change the specification (including the quantity ofproducts required) of any agreed order unless that Supermarketeither:(a) gives Reasonable Notice of such change to that Supplier inwriting; or(b) fully compensates that Supplier for any net resulting costsincurred as a direct result of the failure to give ReasonableNotice.Limited circumstances for compensation for erroneous forecasts17 Notwithstanding clauses  and  above, a Supermarketshall fully compensate a Supplier for any cost incurred by thatSupplier as a result of any forecasting error attributable to thatSupermarket unless:(a) that Supermarket has prepared those forecasts in good faith andwith due care; or(b) there is an agreement in writing between that Supermarket andthat Supplier before the relevant supplies of the product are madethat such compensation is not appropriate.18 A Supermarket shall ensure that the basis on which it preparesany forecast is transparent.PART 5 - CONSUMER COMPLAINTSNo unjustified Payment for consumer complaints19 Subject to clause  below, where any consumer complaint canbe resolved in store by a Supermarket refunding the retail price orreplacing the relevant product, that Supermarket shall not directlyor indirectly require a Supplier to make any Payment for resolvingsuch a complaint unless:(a) the Payment does not exceed the retail price of the productcharged by that Supermarket;(b) that Supermarket is satisfied on reasonable grounds that theconsumer complaint is justifiable and attributable to a failing onthe part of that Supplier; and(c) that Supermarket gives notice to that Supplier of suchcomplaint.20 Subject to clause  below, where any consumer complaintcannot be resolved in store by a Supermarket refunding the retailprice or replacing the relevant product, that Supermarket shall notdirectly or indirectly require a Supplier to make any Payment forresolving such a complaint unless:(a) the Payment is reasonably related to that Supermarket's costsarising from that complaint;(b) that Supermarket has verified that the consumer complaint isjustifiable and attributable to a failing on the part of thatSupplier; and(c) a full report about the complaint (including the basis of theattribution) has been made by that Supermarket to that Supplier.21 A Supermarket may agree with a Supplier an average figure forPayments for resolving such complaints as an alternative toaccounting for complaints individually.PART 6 - THIRD PARTY DEALINGSNo tying third party goods and services for Payment22 A Supermarket shall not directly or indirectly require aSupplier to obtain any goods, services or property from any thirdparty where that Supermarket obtains any Payment for thisarrangement from any third party, unless the Supplier's alternativesource for those goods, services or property:(a) fails to meet the objective quality standards laid down forthat Supplier by that Supermarket for the supply of such goods,services or property; or(b) charges more than any other third party recommended by thatSupermarket for the supply of such goods, services or property.PART 7 - STAFF TRAININGObligatory training for buyers23 A Supermarket shall supply a copy of this Code to all Grocerybuying staff.24 A Supermarket shall provide training on the requirements ofthis Code to all Grocery buying staff.25 A Supermarket shall furnish to the Director an annual returndetailing staff training and guidance issued in relation to thisCode in such form and on such days as the Director may specify fromtime to time.PART 8 - GENERALCompliance and Dispute Resolution26 A Supermarket shall negotiate in good faith with a Supplier toresolve any dispute arising under the terms of this Code.27 If bi-lateral negotiations under clause  above cannotresolve a dispute within 90 days of that dispute arising, aSupermarket shall at its own expense offer the services of theMediator to assist.28 If the Mediator under clause  above has failed to resolve adispute, the Supermarket shall give notice to the Director.29 A Supermarket shall notify the contact details of any Mediatorto the Director.30 A Supermarket shall procure the Mediator to supply to theDirector:(a) an annual return of its work under this Code in such form andon such days as the Director may specify from time to time; and(b) such other information as the Director may specify from time totime in relation to individual cases on which the Director isconsidering taking action.Interpretation31 For the avoidance of doubt, compliance with this Code does notaffect the duty on any person to comply with or restrict theapplication 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 UnitedKingdom and include food, pet food, alcoholic and non alcoholicdrinks, cleaning products, toiletries (dental care products, soap,hair care, sanitary protection, nappies and similar products) andhousehold goods (tissues, kitchen rolls, food wraps, bin liners,light bulbs and similar products) but exclude food and alcoholicand non alcoholic drinks sold for consumption in the store where itis purchased, petrol, clothing, DIY products, financial services,pharmaceuticals, newspapers, magazines, greetings cards, compactdiscs, video and audio tapes, toys, plants, flowers, perfumes,cosmetics, electrical appliances, kitchen hardware, gardeningequipment, books, tobacco and tobacco products and Grocery meansany one of them;'Group of Interconnected Bodies Corporate' has the meaning given insection 137(5) of the Fair Trading Act 1973;'the Mediator' means such independent person or persons as shall beappointed by a Supermarket under clause  above from time totime 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 areduced retail price, or with some additional benefit to consumersthat 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 andthis depends on the circumstances of each case including, forexample:(i) the duration of any relevant contract or the frequency withwhich orders are placed by the Supermarket for relevant Groceries;(ii) the characteristics of the relevant Groceries and theirproduction including durability and dependency on external factorssuch as the weather;(iii) the value of any relevant order relative to the turnover ofthe Supplier in question; and(iv) the overall impact on the business of the Supplier of theinformation given in the notice;(b) whether the reasons for the notice period given aretransparent; and(c) whether similar cases are treated alike;'the Supermarkets Report' means the report of the CompetitionCommission on the supply of Groceries from multiple stores in theUnited Kingdom presented to Parliament in October 2000 (Cm 4842);'Supermarkets' means all retailers of Groceries with 8pct or moreof the market for the purchase of Groceries for resale from theirstores in the United Kingdom and 'Supermarket' means any one ofthem;'Supplier' means any Person actually or potentially carrying on abusiness in the supply of Groceries to any Supermarket, such Personbeing established anywhere in the world but, in relation to anySupermarket, excludes any Person which is a member of the sameGroup of Interconnected Bodies Corporate as that Supermarket; and'Unreasonably Require' in clauses  and  excludes a casewhere a Supplier genuinely volunteers to make a Payment in responseto ordinary commercial pressures, provided that, where thosepressures are partly or wholly attributable to a Supermarket, theyshall only be deemed to be ordinary commercial pressures where theyare objectively justifiable, transparent and result in similarcases being treated alike.