Good egg or bad apple?

28 February 2008
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28 February 2008

The Competition Commission wants to change the way supermarkets work with their suppliers. But how effective will the proposals be, asks Jake Kanter

It's taken a long time to bear fruit, but the Competition Commission's investigation into supermarkets this month proposed a new code of practice to regulate supplier relationships (News).

Under the recommendations, an independent ombudsman will mediate disputes between supermarket buyers and their suppliers and investigate records if a complaint is raised.

Buyers will also have to report to a compliance officer within their company. Their role will be to improve record keeping and provide suppliers with information about contracts.

When SM raised the idea of third-party regulation around a year ago, most buyers were positive about it - 62 per cent were in favour of some outside intervention, and only 29 per cent were against it (News, 1 February 2007).

The commission hopes the reforms will offer suppliers extra protection, alter buyer behaviour, rebuild suppliers' faith in contracts and prevent any criticism of supermarkets for harming their vendors.

But do the commission's recommendations go far enough?

Andrew Simms, policy director at think-tank the New Economics Foundation, says he is not surprised that two of the UK's biggest supermarkets, Asda and Sainsbury's, have welcomed the new code of practice. He argues that the proposals are weak and will play into the hands of the big retailers.

"Tomorrow we will all wake up with the same problem left behind after the last major supermarket investigation eight years ago: too much power in too few hands," he says.

Jim Bradley, associate at legal firm emw law, agrees: "The proposals are a little weak. The idea of an ombudsman is good in theory, but it lacks teeth and it won't give smaller suppliers enough protection. If they were to be applied to other industries, they'd need to be much tougher."

Bradley argues that the commission should follow the European Union's lead and take legal steps against buyers who breach regulations. "They need to be much more heavy-handed. Dawn raids should be carried out on supermarkets to get more information on the way they do business."

But will the introduction of relationship regulation in one sector see other industries take similar measures? Most experts believe the remedies could not be transferred to other sectors in the future.

Simon Briault, spokesman for the Federation of Small Businesses (FSB), says this is because the commission has only "tinkered" with the current structure and has failed to initiate real change. He describes the effort as "completely pointless" and explains that it could "entrench the status-quo" of a big buyer's power over its suppliers.

"Although the ombudsman is good in theory, there are still a lot of barriers for suppliers and many of them won't want to run the risk of complaining about a supermarket," he says. "Contracts are set up in such a way that supermarkets could find out who is making a complaint against them and the supplier could lose their business.

"A regulator should introduce changes that have real impact and not just play into the hands of the supermarkets."

Tesco, the UK's largest supermarket, says that introducing an ombudsman would be unnecessarily bureaucratic and could slow down the supply chain.

"More red tape is likely to stifle innovation and investment and reduce the ability of retailers and suppliers to work together flexibly to deliver the best deals for customers," it said in a statement.

But Briault disagrees with Tesco's assumption: "The FSB don't believe that anyone will sympathise with the fact that they have to do a bit more paperwork. Furthermore, the proposals won't inhibit supplier innovation, they are designed to help suppliers."

SMfeb2008

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