The Groceries Code Adjudicator has announced today that she is launching an investigation into Tesco. Earlier in the week the parliamentary process to allow the adjudicator to fine supermarkets was started. Our food & drink specialists summarise this and related developments.

It has been a busy week in the world of GSCOP:

  • The Groceries Code Adjudicator announced today that she is investigating Tesco.
  • Earlier in the week the parliamentary process to allow the adjudicator to fine supermarkets was started.
  • The political temperature has increased with Vince Cable pointing to increasing the budget for the adjudicator and the Department of Business, Innovation and Skills launching a consultation on late payment terms

Tesco investigation

When the issues about Tesco's misstatement of profits arose last autumn, the Groceries Code Adjudicator asked that any details of potential breaches of GSCOP (The Groceries Supply Code of Practice) be supplied to her.

Since then there has been lots of discussion in the public domain of alleged practices at Tesco and other supermarkets in their dealings with their suppliers - it even attracted an investigation by BBC Panorama.

So it's perhaps inevitable that the Groceries Code Adjudicator has now announced her own investigation.

Key aspects of the Groceries Code Adjudicator's announcement:

  • the adjudicator had formed a reasonable suspicion that Tesco has breached GSCOP, and that to investigate was proportionate to the allegations - ie not based on just one isolated complaint.
  • It will cover the conduct of Tesco plc from 25 June 2013 to 5 February 2015.
  • It will focus on practices which have resulted in delay in payments to suppliers, including:
    • Short deliveries, including imposition of penalties
    • Consumer complaints where the amounts were not agreed
    • Invoicing discrepancies such as duplicate invoicing where two invoices were issued for the same product
    • Deductions for unknown or un-agreed items
    • Deductions for promotional fixed costs (gate fees) that were incorrect
    • Deductions in relation to historic promotions which had not been agreed.
  • It will also look at practices where the supplier has been asked to make payments for shelf positioning payments unrelated to a promotion.
  • For those of you interested in the GSCOP detail this is Part 4 (paragraph 5) of the GSCOP Code (No delay in payments) and Part 5 (paragraph 12) of the GSCOP Code (No payments for better positioning of goods unless in relation to promotions).
  • It is limited to Tesco. But if the practices are found to also relate to other supermarkets then the adjudicator may extend the investigation.
  • Call for evidence to be submitted by 3 April 2015. The Groceries Code Adjudicator has emphasised her duty of confidentiality to suppliers.
  • This is the third investigation Tesco faces - there are also investigations by the Serious Fraud Office and Financial Reporting Council.
  • Whatever the result of the investigation, the adjudicator will not be able to fine as her power to fine has not been implemented as yet (see below). However, she is able to make recommendations and/or require Tesco to publish information - for example she could force Tesco to take out adverts in national papers acknowledging the report. And the report could be hugely influential on supermarket and supplier contracts going forward.
  • This will be a protracted process. The Groceries Code Adjudicator anticipates that it will take nine months, and then if the outcome is negative for Tesco, the supermarket may exercise its right to appeal or seek a judicial review.

This is a key make or break moment for the Groceries Code Adjudicator. It would have been damaging to her reputation to have taken no action. But to take on such a wide-ranging investigation with the UK's largest grocer is itself hugely challenging. This is especially in an environment that few suppliers will go on the record to make a complaint about their biggest customer (a YouGov survey last year found that 58% of supermarket (NB not just Tesco) suppliers would not raise concerns because they feared retribution). The report could make a big difference, or a total failure if suppliers are not prepared to talk to the Groceries Code Adjudicator to expose alleged unfair practices.

Power to fine

What has happened?

Fines for supermarkets have moved a step closer after proposed legislation was laid before Parliament to give the Groceries Code Adjudicator the power to fine UK supermarkets that have breached the Groceries Supply Code of Practice (GSCOP).

The Adjudicator will be able to impose penalties on the large supermarkets of up to 1% of their total annual UK turnover (not just turnover of groceries), dependant on the seriousness of the breach. The Adjudicator has already published guidance on the principles that will be used to calculate the level of any fine.

These new measures will sit alongside existing powers to issue supermarkets with recommendations as to their future conduct, and to 'name and shame' those that have breached GSCOP.

It has taken a year for the step to implement the power to fine. Vince Cable blamed the Treasury and differences in the Coalition Government for the delay.

The proposed legislation will now be debated in both the House of Commons and the House of Lords and the Government hopes it will become law before this year's General Election.

Other developments

  • Vince Cable has announced a 40% increase in the Groceries Code Adjudicator budget. This is, we imagine, to fund the Tesco investigation. Given the Groceries Code Adjudicator has a small team of just five staff the budget increase is pretty modest.
  • The Department of Business, Innovation and Skills has published a consultation paper on Late Payment called "Challenging Grossly Unfair Terms and Practices" seeking responses by 9 March 2015. It indicates that the Government might be prepared to introduce further legislation to control payment practices.

For an overview of GSCOP, please see our previous article "The Groceries Supply Code of Practice".