Wragge Lawrence Graham & Co's food & drink specialists explain what de-listing is, what the guidance says and what all of this means for supermarkets and suppliers.
On 27 November, the Groceries Code Adjudicator (GCA) issued a guidance document on the ability of retailers to de-list suppliers. This follows the GCA recently asking Tesco to examine its behaviour towards suppliers during an internal review, which we reported on.
What is de-listing?
De-listing is where a supermarket ceases to buy a product from a supplier or significantly reduces volume purchased.
How does GSCOP regulate de-listing?
The Groceries Supply Code of Practice (GSCOP) requires large supermarkets to only de-list for "genuine commercial reasons". Suppliers are then given certain protections - the right to "reasonable notice", the right to review with the senior buyer and the right to discuss with the supermarket's GSCOP Compliance Officer.
What does the guidance say?
The GSCOP requirements do not explain how the de-listing requirements are practically applied. The guidance, therefore, seeks to address what "significant" and "reasonable notice" mean.
What does "significant" mean?
The guidance notes there is no specific guidance in GSCOP on the meaning of significant and therefore it has a normal dictionary meaning. It concludes that factors to consider when determining whether a reduction in volume purchased is significant include:
- whether the goods supplied are branded or own-label;
- whether the relevant supply contract is sole or exclusive to the retailer;
- whether the goods supplied are a niche product;
- the speed, ease and extent to which the supplier can switch to supplying an alternative customer without loss of profit;
- the extent to which production of the goods by the supplier can be controlled (where relevant), for example, it might be hard for a supplier of fresh produce to cease supplying without adequate notice; and
- certain external and well-publicised factors affecting demand, such as the horsemeat scandal.
These may determine or significantly direct a retailer's action and the applicable timescales.
What is "reasonable notice"?
The guidance states that factors to consider when determining whether a retailer's notice to de-list is reasonable will generally include:
- the duration of the relevant supply contract to which the notice relates, or the frequency with which orders are placed under it;
- the characteristics of the goods supplied including durability, seasonality, and external factors affecting their production;
- the value of any relevant order relative to the turnover of the supplier;
- the consistency with which the retailer applies its de-listing policy;
- the overall impact of the information given in the notice on the supplier's business, to the extent that this is reasonably foreseeable by the retailer;
- other relevant contracting history or practice between the parties, for example, changes in order size and frequency, changes in price per unit, changes in value or percentage of the supplier's turnover earned from that retailer;
- for how long the supplier has supplied the retailer;
- the reasonable expectations of the parties;
- the length of time taken to produce the goods;
- any relevant joint planning activity, including forecasting and projected return on investments made to innovate in the production of the goods; and
- whether and when the supplier had been forewarned of possible de-listing or reduction in business with the retailer.
What does it all mean?
The guidance does not answer what "significant" or "reasonable notice" mean specifically.
However, the GSCOP adjudicator is clearly encouraging a broad approach under which the supermarket gives some thought to the potential impact on the supplier.
In particular, the GSCOP adjudicator emphasises that a "one size fits all" approach is not appropriate, meaning a standard de-listing policy that applies to all suppliers whatever their product, whatever their size, whatever the circumstances is not acceptable. Supermarkets are, therefore, being encouraged to first discuss with suppliers a possible de-listing to ascertain its impact on the supplier before actually de-listing.
Equally, the GSCOP adjudicator emphasises that suppliers cannot expect total immunity from being de-listed or for all the commercial risk to be transferred to the supermarket. The guidance does not give suppliers the right to block de-listing, but the right to understand why and potentially slow the de-listing down.
For an overview of GSCOP, please see our previous article"The Groceries Supply Code of Practice" .