With the supply chain challenges of the March and April Covid-19 lockdown and the Auckland Alert Level 3 border problems successfully behind them, suppliers of food and groceries are now able to turn their full attention to another issue – rebuilding their businesses and thinking about the future.
They’re also dealing with the consequences of new challenges brought about by changes to the Foodstuffs North Island Buying Model. Though a few companies have been able to use the model, LEAF, to their advantage, most suppliers are now paying more to the retailer for the promise of benefits to come.
The changes have been well flagged, and there could not have been more engagement and explanation about how it wished to move from head office co-op payments to a fixed-percentage rebate.
Initially, suppliers were told they would be able to opt out of that rebate, but in March the company said that would no longer happen, and opting out meant they wouldn’t be included in trade catalogues – a main driver of sales opportunities.
In an article in the September issue of Supermarket News, independent consumer goods consultancy Hexis Quadrant laid out the issues: at the time of negotiation, suppliers were not aware they would miss out on flyer activity if they opted out, and the structure of the new rebate would have ramifications in future negotiations.
The article listed incidents where Foodstuffs “heavily leaned on” suppliers who hadn’t signed up to LEAF, and summarised a range of inequities and issues in negotiations over the Centralised Store Display Co-op, which is designed to roll up suppliers’ discretionary store-level investment that ensures off-location display space in store. These included allusions to range deletion, cancelled promotional programmes, and inability to activate off-location displays, leaving many suppliers feeling they had little choice but to agree.
Now even the bigger companies are signed up, having extracted additional conditions and accountabilities, and all suppliers are watching to see how the new way of doing business beds in.
The next few months are critical, and the retailer has to demonstrate success that can show grocery suppliers that their extra costs are making the boat go faster for all passengers.
The supplier community has been very supportive and is wishing the retailer every success, but if success is not felt, then they will invest discretionary funds into areas where they can better predict what the outcome will be.
The Food & Grocery Council listened to suppliers talk about negotiation tactics that cross the line in terms of pressure, incorrect information, or implied threats. Some were given contracts with no exit clauses and told there was no chance to negotiate.
That’s in the past, but the issue ahead is whether stores will continue to seek contributions above the agreed percentage on the display co-op and double-dip. It’s hoped head office will take further steps to insist on adhering to the model.
Hexis Quadrant also said as a result of these sorts of reports it was time New Zealand developed a Grocery Code of Conduct similar to that in place in Australia for some years. “Now is the time to create the change necessary for protection of the hard-working supplier base in New Zealand”, they said.
After recent reports, it’s hard not to agree that it’s time for New Zealand to move forward.
So what’s the Australian Code of Conduct?
It was introduced in 2015 by Coles and Woolworths and the Australian Food & Grocery Council to address how retailers negotiate with suppliers and their conduct while doing so.
While retailers are now treating suppliers better, a recent review identified areas that should be changed to achieve even higher standards of business dealings, and last year the Government agreed to most of them, including:
- setting limits on acceptable conduct during price-rise negotiations
- banning variations to agreements that have retrospective effect
- supermarkets not being able to force suppliers to disclose sensitive information during negotiations
- a 30-day limit on price-rise negotiations once both parties agree all relevant information has been provided.
But one of the bigger recommendations the Government intends taking up is the appointment of a ‘code arbiter’ with information-gathering powers to investigate complaints from suppliers and make binding decisions. This is similar to the adjudicator who oversees the UK’s Groceries Supply Code of Conduct.
In light of the latest experiences, FGC is asking members what they think about a code of conduct here. When we surveyed them last year, more than 75% agreed we should have one. I can only imagine that percentage is higher now.
To confirm, members are genuinely keen for the Foodstuffs changes to be a success, but they have to be introduced in a fair manner that delivers results for suppliers too. That’s why what happens at store level from this point is so critical.
(originally published in Supermarket News)