A Grocery Code of Conduct came closer recently when the Food & Grocery Council appeared before a parliamentary select committee to make an oral submission on our petition.
We have long advocated for a framework similar to those in Australia and the UK which introduces more transparent supplier-retailer business relationships and addresses abuses of market power suppliers have been battling for years.
Our petition, presented to Parliament in February, gained powerful backing from the Commerce Commission in its draft report on its market study into supermarkets. It said a Code would “help strengthen suppliers’ bargaining power with retailers and prevent current conduct which reduces the ability and incentive of suppliers to invest and innovate”, and that would flow into lower prices and more choice for consumers.
Perhaps the best way to explain what we expect from a Code are to reproduce my speaking notes to Parliament’s Economic Development, Science and Innovation Select Committee:
“A Grocery Code of Conduct should be uncontroversial. It enables contractual clarity and efficiency. It would protect vulnerable workers. It would not prevent tough bargaining.
It would also reduce economic efficiencies, including:
- the inefficiency of unnecessary contractual uncertainty, and
- the inefficient allocation of risk to parties who cannot control those risks.
I will briefly discuss the conduct we see and why we see it, the benefits of a Code of Conduct, and what a Code should look like.
- Conduct we see and why we see it
The conduct we see includes:
- unilateral variations of existing terms by supermarkets
- retrospective charges imposed by supermarkets
- threatening to delist products
- actual delisting if desired margins are not delivered
- suppliers paying for promotions but receiving none
- supermarkets not passing on discounted prices to consumers
- preventing suppliers from offering low prices to other retailers
- requiring supplier innovations to become private label products
- bullying and harassing supplier merchandising staff.
These are all real experiences shared with me since I took on the role of CEO.
Supermarket retailers can behave this way because they have market power. The risks of, and harm from, this conduct are acute in New Zealand due to our supermarket duopoly. This is a key factor in consumer dissatisfaction with supermarket pricing in New Zealand.
- The benefits of a Code of Conduct
- It would set base parameters to limit more egregious conduct
- It would provide for more normal commercial contracting, clarity and transparency. It won’t stop hard bargaining nor is it a replacement for negotiation.
- It would prevent retrospective unilateral variation of terms and would put responsibility for risks (such as stock loss) on the parties able to control that risk. This is inherently more efficient and would also reduce inefficient bargaining.
The benefits of a Grocery Code of Conduct have been recognised by our peers in much less concentrated markets. Australia and the United Kingdom have Codes and one is proposed for Canada. The UK introduced its Code even though its supermarket industry was considered competitive. This recognised the clear efficiency benefits of a Code.
A Code of Conduct is consistent with normal commercial contracting.
- What a Code of Conduct should look like
It’s critical a Code of Conduct is mandatory and developed and overseen independently. NZFGC doesn’t have the resources that were available in Australia for developing its voluntary Code. We can see from the UK and Australia what works and what doesn’t.
A Code needs to be binding in law, enforceable, with a strong dispute resolution facility, and enforced by a well-resourced, independent adjudicator.
The UK started with a voluntary Code but it was made mandatory in 2008. It also now has a specific enforcement authority that can impose fines up to 1% of turnover.
A Grocery Code of Conduct for New Zealand has little downside and potentially significant upsides in fostering a healthier grocery sector that is more transparent, efficient and clear.”
(originally published in FMCG Business magazine)