Tales of supplier mistreatment by retailers are all too familiar

Gerard Chick
28 June 2015

I don’t think many of us were surprised to see Tesco outed in a survey by the Groceries Code Adjudicator as the UK’s worst big supermarket for complying with industry guidelines designed to protect suppliers this week.

A third (34 per cent) of suppliers surveyed said Tesco ‘rarely’ or ‘never’ stuck to Grocery Supply Code of Practice code. What did they expect?

This isn’t a recent phenomenon. As far back as October 2000, when the Competition Commission produced a report on UK supermarkets, there was evidence multiple food retailers were engaging in practices that adversely affected the competitiveness of suppliers. To address this it was recommended that a code of practice be introduced to govern retailer-supplier relationships.

Earlier this year Tesco’s ability to adhere to ‘the code’ was also called into question when its behaviour towards suppliers was exposed as being aggressive, with the retailer demanding retrospective rebates and discounts. Pressure on suppliers is predictable and a natural consequence of buyer dominance in a market. But suppliers do retain a bit of power and if they’re treated fairly, they’re likely to return the favour.

The outcome of the Competition Commission in 2000 was these aggressive tactics, when carried out by any of the major buyers, could distort competition in the supplier market. A legally enforceable code of practice was introduced that recommended the code should exemplify best practice in commercial relationships and be underpinned by three key principles:

1. The need for all parties to recognise the competitive pressures of the market place and the need to respond quickly to customers to deliver value
2. That all supply chain participants, in whatever sector, would benefit if they worked together to expand the market for their products and develop a profitable and sustainable business
3. That all trading partners should be treated fairly and reasonably.

Clearly not all supermarket buyers are bad. But practices undoubtedly vary significantly between retailers and there is always room for improvement. Moreover a retail strategy based on everyday low prices does not necessarily mean that suppliers must suffer.

Supermarket buyers who squeeze their suppliers, through exploitive buying practices, also indirectly squeeze primary producers at the end of the chain as the first tier suppliers will try and offset their losses by paying lower prices to primary producers.

Given the growing discontent among suppliers it is important some sort of independent and impartial monitoring is undertaken of retailer-supplier relationships to foster a trading environment and commercial practices that allow suppliers to remain competitive and have the confidence to invest in the future. It’s time perhaps for supply chain justice?

Gerard Chick is chief knowledge officer at Optimum Procurement Group

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