Katherine Rich: New code may affect suppliers

10 July 2016

Friday 1 July was a momentous day for Australia’s food and grocery industry – that was when their Food & Grocery Code of Conduct kicked in. For all companies supplying Woolworths, Coles or ALDI with brands or private label products (including those based in New Zealand) the Code means a new set of principles and rules overseeing supplier/retailer relationships.

Though the Code is Australia-based, it’ll be fascinating to watch how it affects the way Countdown approaches the treatment of suppliers in New Zealand. Foodstuffs has had its Partnership Guidelines for some time, but Countdown has not moved in that direction.

Some will argue Countdown is technically separate from its Woolworths mother ship and so there’ll be no flow-on here, but the reality is that Countdown’s negotiators will find it hard to sustain some negotiation demands – such as compensation for store theft – which are expressly ruled out by the Code. If a demand is deemed not fair or reasonable in Australia, it’s hard to justify it being fair or reasonable here.  Continuing with such practices in New Zealand when they are essentially illegal for the Australian parent will not pass the sniff test, and will provide further reason to roll out a Code here.

It’s worth reminding what the Australian Code covers.  Here’s a summary from our sister association, AFGC:

The Code is based on an agreed set of principles and guidelines. Ten key principles underpin it:

•             Bargaining in good faith

•             Being fair, just and reasonable

•             Taking due care and being responsible

•             Showing respect for commercial relationships

•             Using simple and easy-to-understand terms and conditions

•             Prior agreement between the parties on terms and conditions

•             Being transparent and ensuring full disclosure of critical information

•             Providing adequate time to consider and review agreements and changes

•             Meeting all commitments and making deliveries and payments in full, on time

•             A confidential and supportive complaints and dispute resolution process.

The Code is based on principles of fair dealing, providing surety of contract:

•             Requirement for retailers to maintain written supply agreements with vendors

•             Payment of goods must be in accordance with the agreement 

•             Prevents retrospective cost claims, except in limited circumstances

•             No payments for shrinkage (theft)

•             Prohibitions on payments for wastage, except in limited circumstances

•             No payments for better positioning of product in store, except in limited circumstances

•             Clarity around promotional activities and funding

•             Prevents retailers shifting costs onto suppliers unfairly or without negotiation

•             Requires genuine commercial reasons for delisting products

•             Obligations relating to retailers’ own brands i.e. intellectual property, confidentiality, transparency of range/shelf space allocation and exclusivity

•             Delivers time-efficient and cost-effective dispute resolution process

•             Requires retail buyers to be trained in Code content

•             Requires retailers to employ a Code Compliance Manager to oversee complaints.

The shrinkage issue is one that is currently relevant in New Zealand.

NZFGC’s long-held position is that ullage doesn’t cover theft, and suppliers shouldn’t be asked to compensate for poor in-store security.

Shoplifting has been a problem as long as there’s been retailing. It’s a daily battle, where current law seems weak and shoplifters are increasingly bold and organised.

While it’s a problem for all retailers, I’ve received reports recently that some Countdown stores have had eye-watering problems with theft, particularly of high-value, easily-traded items.  In some instances, so much stock is disappearing that it can only be organised theft.

Who knows what steps have been taken to increase store security, but it’s a surprise that suppliers are being asked to factor-in such losses in negotiations – something that is now categorically ruled out across the ditch.

If thousands of units are walking from stores then surely the issue is a retail problem. The answer is not to seek compensation from suppliers and talk delisting if they don’t play ball (something also ruled out by the Code).

It’s another example of retailers trying to get suppliers to take on more of the risk in the store. If suppliers compensate retailers for professional thieving in the store, what motivation is there for retailers to improve store security? 

(as published in FMCG Business, July issue)