The Groceries Supply Code of Practice (GSCOP) is legislation designed to regulate the relationship between supermarkets and their suppliers.
Since its introduction in 2009 it has had, in reality, limited impact. However, that may be about to change with the appointment of an independent adjudicator who has the power to arbitrate, investigate and fine.
In this insight our food and drink experts answer some FAQs, explaining what GSCOP is and how it can be used.
What is GSCOP?
GSCOP is a legally binding code imposed on certain supermarkets. It does not apply to all supermarkets, only those which are defined as Designated Retailers.
If a Designated Retailer does not comply with GSCOP, then a supplier is able to escalate the dispute and involve the GSCOP Adjudicator. The GSCOP Adjudicator has the power to arbitrate, investigate and fine a Designated Retailer.
Who are the Designated Retailers?
GSCOP lists the Designated Retailers:
- Marks & Spencer
- Morrison Supermarkets
The list is not set it stone, it can be changed. To be eligible to be classed as a Designated Retailer, a company's turnover in sales of groceries in the UK must exceed £1billion.
I supply to one of the Designated Retailers - does GSCOP apply to me?
GSCOP is only relevant to the supply of groceries for resale by a Designated Retailer. A supplier can be based anywhere in the world.
GSCOP is not relevant to:
- suppliers of services to Designated Retailers (e.g. logistics or IT services)
- suppliers of goods which are not for resale (e.g. stationery for a retailer's internal use)
- Food and drink (other than that sold for consumption in the store)
- Pet food
- Cleaning products
- Toiletries and household goods
- DIY products
- Financial services
- Greeting cards
- CDs, DVDs, videos and audio tapes
- Electrical appliances
- Kitchen hardware
- Gardening equipment
- Tobacco and tobacco products
What are the key obligations imposed on the Designated Retailers?
Designated Retailers must in their supplier relationships:
- Ensure supply terms are recorded in writing.
- Ensure the supplier is provided with the full terms (which includes all the terms, codes etc referred to in the main supply agreement).
- Provide the supplier with a notice setting out its GSCOP obligations, including the identity of the senior buyer.
- Deal fairly and lawfully, applying good faith, without duress and recognising the supplier's need for certainty.
- Not make supply arrangements retrospectively unless in accordance with specific detailed arrangements in the supply agreement.
- Give reasonable notice to vary supply agreements or to make significant changes to supply chain procedures.
- Not delay in making payment.
- Not require payment to marketing costs unless specifically stated in the supply agreement.
- Not require payment for shrinkage.
- Not require payment for wastage unless as stated in the supply agreement.
- Not require payment of a listing fee, except in relation to a promotion or for new products.
- Compensate the supplier for the Designated Retailer's forecasting errors, except as expressly stated in the supply agreement or where the Designated Retailer acted with due care and good faith.
- Not insist the supplier obtains goods, services or property from a third party unless cheaper than the supplier's source.
- Not require payment for better positioning of goods unless in relation to promotions.
- Not require the supplier to predominantly fund a promotion. Reasonable notice must be given to the supplier of a proposed promotion to which the supplier will contribute. Retailer must take due care not to over-order a promotion.
- Not require payment for resolving consumer complaints unless due to supplier's breach and certain other controls.
- Only de-list the supplier with reasonable notice and for genuine commercial reasons.
All of this is supported by obligations on the Designated Retailer to train staff, appoint an in-house compliance officer, and to issue an annual report (a summary of which needs to be included in the Designated Retailer's annual company report).
I am concerned about how am I treated by a Designated Retailer. What can I do?
If you are supplying a Designated Retailer then it is likely that it does, or will come to, represent substantial turnover to your business. Therefore you will, of course, be careful to bear the commercial benefit of the relationship in mind. Challenging a Designated Retailer will, at best, indirectly affect your overall relationship!
GSCOP is, therefore, unlikely to be the sole means of tackling unfair treatment by a Designated Retailer.
To use GSCOP effectively:
- Make absolutely sure that the Designated Retailer is likely to be in breach of GSCOP. To raise an incorrect GSCOP allegation will be damaging.
- Bear in mind that although GSCOP imposes responsibilities on the Designated Retailer it will not intervene to protect you from fair competition.
- Designated Retailers have established internal training and compliance programmes and will be concerned about any allegation of serious non-compliance. Therefore, raise your concern about the GSCOP breach with your buyer in a positive supportive way, as opposed to an aggressive confrontation. Most buyers will not want to risk an allegation of non compliance.
- Combine raising GSCOP in combination with broader commercial issues.
- Utilise your broader relationship with the Designated Retailer. An approach by your sales director to a senior buyer or category lead to flag up concerns may ease the situation.
The dispute with the Designated Retailer is getting serious - how do I escalate it?
If the approach set out above does not work, then you can consider following formal escalation provisions in GSCOP but bear in mind that escalating the dispute formally is likely to be damaging to your overall relationship.
GSCOP sets out an escalation process:
- Make a written request of the senior buyer to review the decision. The senior buyer is obliged to carry out that review.
- Notify the Designated Retailer's code compliance officer of the dispute. The Designated Retailer is obliged to negotiate in good faith to resolve the dispute.
- If having notified the Designated Retailer's code compliance officer the dispute is not resolved, then you can request the Adjudicator to arbitrate. The Adjudicator's decision is final and binding.
In addition, GSCOP establishes binding provisions in your supply contract with the Designated Retailer. Therefore you can also consider taking legal action in the courts for breach of contract.
How else can the Adjudicator assist?
The Adjudicator's role is not simply to arbitrate on disputes. The Adjudicator will have the power to also investigate and subsequently:
- Make recommendations.
- Require information to be published.
- Impose financial penalties (The Adjudicator is consulting on setting the maximum penalty at 1% of the relevant Designated Retailer's UK turnover)
The Adjudicator is also going to play an important, more informal role engaging with Designated Retailers and suppliers to build better relationships.
You can approach the Adjudicator directly or alternatively via a trade association (which may allow the retention of confidentiality).
The Adjudicator will be able to take action once statutory guidance is in place. That is the subject of consultation. It will be in force by 25 December 2013.