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OFT Supermarkets Code of Practice Review - Press Release |
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OFT publishes supermarkets code review: OFT to conduct compliance audit with supermarkets
20th February 2004
www.oft.gov.uk/News/Press+releases/2004/28-04.htm
The OFT's review of the Supermarkets Code of Practice, published today, found a widespread belief among suppliers that the Code is not working effectively. There is no hard evidence to support this, however. The OFT is therefore commissioning further work to establish how supermarkets deal with suppliers under the Code. Download The supermarkets code of practice report (pdf 277 kb)
Following a consultation with suppliers, their trade associations and Asda, Sainsbury's, Safeway and Tesco (see note 3), 80 to 85 per cent of respondents claim the Code has failed to bring about any change in the supermarkets' behaviour.
Despite anecdotal evidence that the Code is not working, no cases have gone to mediation under the Code (see note 5). Nor has the OFT received any detailed information from suppliers or trade associations about alleged breaches of the Code. This has made it impossible to draw any firm conclusions as to how individual supermarkets are operating under the Code, though it is clear that widespread dissatisfaction amongst suppliers continues.
Fear of complaining was the main reason identified for the Code's perceived lack of effectiveness. Seventy three per cent of respondents reported a fear of complaining amongst suppliers.
The concept of 'reasonableness' (see note 6) used in many of the Code's terms was also seen by suppliers to allow the supermarkets to interpret the Code to the detriment of suppliers, leading to uncertainty about the some of Code's key provisions and increasing reluctance to complain.
The four supermarkets themselves each express a commitment to the Code and believe that relations with suppliers are generally good. However, the OFT has no evidence from the supermarkets that their relationships with suppliers had changed significantly since the introduction of the Code.
Given the reluctance of suppliers to provide specific evidence of alleged breaches of the Code, the OFT intends to obtain information from the supermarkets by conducting a focused compliance audit (see note 7) of each of the four supermarkets' dealings with suppliers.
The audit will involve a sample examination of the supermarkets' records of dealings with their grocery suppliers, focusing particularly on the clauses of the Code where claims of breaches were more frequently identified by suppliers.
Penny Boys, OFT Executive Director, comments:
'Our review has shown that dissatisfaction among suppliers with the Supermarkets Code continues. The purpose of the audit is to enable the OFT to establish hard facts about the supermarkets' compliance with the Code. This is necessary to assess the suppliers' concerns. We will then be in a better position to decide on any further action.'
NOTES
1. The OFT review of the Supermarkets Code of Practice began on 17 February 2003. The review period covers the inception of the Code on 17 March 2002 to date.
2. The Supermarkets Code of Practice ('the Code') forms part of statutory undertakings given to the Secretary of State for Trade and Industry under section 88(2) of the Fair Trading Act 1973 following the Competition Commission's (CC) report on the supply of groceries from multiple stores in the United Kingdom published in October 2000 ('the 2000 CC monopoly report'). The Government's response in December 2002 to the Policy Commission's report on the future of farming and food (Cm 5709) committed the Office of Fair Trading (OFT) to preparing an annual report on how the Code has been working, particularly in relation to dispute resolution. This is the first such report.
3. The 2000 CC monopoly report recommended that any supermarket meeting the eight per cent of grocery purchases criterion should be required to give undertakings to comply with the Code. Undertakings were given by Asda, Safeway, Sainsbury and Tesco which each met the eight per cent criterion.
4. As part of the review's consultation the OFT wrote to 61 grocery supply bodies. 35 of these replied and a further 16 bodies sent in submissions, making 51 responses in total. Each of the four supermarkets who had given undertakings to comply with the Code were met by the OFT and gave written responses to the consultation.
5. Since the Code was introduced, no cases have gone formally to mediation under it. The OFT has received one written complaint concerning an alleged breach of the Code but this was found to be outside the scope of the Code as the contract was made before 1 November 2001.
6. The concept of reasonableness was included in the Code so as not to inhibit supermarkets' ability to decide which supplier they should deal with. This led to the Code being drafted so that stress was laid on transparency and reasonableness.
7. The scope of the OFT compliance audit is to be determined but it is intended that it will focus on clauses of the Code that received the most widespread level of complaint during the review. It is anticipated that a further review of the Code based upon the audit will be published later in the year.