Written evidence submitted by Asda
Large grocery retailers play an important role
in the economy. The Government recognises that creation of an
Adjudicator should not stifle the consumer benefits delivered
by these retailers but needs to ensure fair dealings between suppliers
and large retailers which will ultimately benefit consumers in
the long run.
The Government's policy document for a Groceries
Code Adjudicator, BIS, May 2011
Asda is one of the 10 designated retailers bound
by the Grocery Supply Code of Practice (the GSCOP) and is an integral
part of the food supply chain. Many millions of customers rely
on ASDA for a guaranteed low price shop week in week out. Our
role in promoting competition and choice has greatly enhanced
shoppers' lives, giving them access to better quality products,
at lower prices. This is especially important to consumers in
these financially difficult times and government and business
must work together to ensure the consumer is put first in any
discussion about the effectiveness of markets.
1. SUMMARY OF
SUBMISSION
— It
is Asda's view that whilst there is merit in having a body to
monitor compliance with the GSCOP there is no case for an Adjudicator,
as set out in the Draft Bill.
— Overall,
the proposed establishment of an Adjudicator through the Draft
Bill is premature as OFT and the government has not had the opportunity
to adequately assess the effectiveness of the GSCOP.
— The
GSCOP is in place to legally guarantee transparent relations between
retailers and suppliers, and already gives suppliers extensive
protection, including recourse to arbitration in the event of
disputes and enforcement through the courts and importantly, protection
from delisting. Asda fully supports the GSCOP and its role as
helping to deliver a healthy market for the ultimate benefit of
consumers.
— Should
an Adjudicator be established it would be best located within
the Office of Fair Trading (OFT). Any new regulatory body, of
the type proposed by the Bill, acting outside of the OFT would
add nothing meaningful to the GSCOP regime and could potentially
undermine the OFT's work on ensuring effective markets.
— The
remit of the Adjudicator should be solely limited to arbitrating
disputes regarding breaches of the GSCOP as originally envisaged
in the BIS consultation.
— The
Adjudicator should be able to receive complaints from direct suppliers
only—the group covered by the GSCOP—that are particularised,
clearly set out and relate to a specific breach of the GSCOP and
as envisaged by GSCOP only when the dispute resolution procedures
laid out in GSCOP have been exhausted.
— The
Adjudicator must be able to remove vexatious claims at the beginning
of the process and not be obliged to investigate thus preventing
a retailer incurring the expense and reputational impact of an
incomplete investigation.
— The
Draft Bill proposes what is in effect a criminal offence with
penalties, yet it does not detail the investigatory framework.
— The
appropriate standard of proof in the context of a breach of the
GSCOP can be nothing other than the criminal standard.
— A right
of appeal must exist across all forms of enforcement measures
and not limited to financial penalties.
We welcome the BIS Select Committee's inquiry into
the Draft Groceries Code Adjudicator Bill and offer the following
comments on the key areas that the Committee will be considering.
2. THE NEED
FOR THE
GROCERIES CODE
ADJUDICATOR
Asda supported the establishment of the GSCOP and
is fully committed to making it a success. Whilst we recognise
the benefits of a body to monitor compliance with the code we
consider that additional legislation to establish an Adjudicator
is unnecessary and risks unintended consequences. The GSCOP is
in place to legally guarantee transparent relations between retailers
and suppliers, and already gives suppliers extensive protection,
including recourse to arbitration in the event of disputes and
enforcement through the courts and importantly, protection from
delisting.
Whilst the Competition Commission was well intentioned
in seeking to provide some additional redress for suppliers, through
a new institution governed by additional legislation, we have
genuine concerns that this could have the unintended consequence
of creating legal and commercial gridlock, and risks enabling
large suppliers to treat an Adjudicator as a tactical commercial
tool.
3. COMPLIANCE
WITH THE
GROCERIES CODE
TO DATE
The GSCOP only came into effect in February 2010
and Asda's first annual compliance report, which covers the period
from the commencement of the GSCOP until the end of Asda's first
full financial year in which the GSCOP is in force, is not due
until April 2012.
We take our obligations under the GSCOP very seriously.
We have highly trained buyers and their induction includes GSCOP
training and our ways of working have embedded policies and procedures
in place to ensure that our buyers are working within both the
spirit and letter of the GSCOP. In addition we have extensive
supplier engagement to gauge how our suppliers feel about their
relationships with us and this measure has improved consistently
over the last five years. As such, we feel strongly that we are
a compliant retailer and that an Adjudicator would offer no added
value for us or our suppliers.
The fact that we have had no disputes referred to
arbitration and no GSCOP complaints to the Code Compliance Officer
further demonstrates our compliance. Out of our base of over 2,500
active suppliers that are covered by the GSCOP we are aware of
four concerns raised with buyers where issues around the GSCOP
were alleged but each was resolved without any further escalation.
We are concerned that the Minister for Consumer Affairs,
who has presented the Draft Bill for parliamentary scrutiny, declared
to Parliament on 13 June that his department had made no assessment
of the operation of the GSCOP. The Bill Team also made clear in
its oral evidence to the EFRA Select Committee on 14 June that
its basis for the draft was based on evidence from between 2006-08—two
years before GSCOP and therefore not reflecting current realities.
4. THE FUNCTIONS
AND POWERS
APPROPRIATE FOR
ANY CODE
ADJUDICATOR
The remit of an adjudicator should be solely limited
to arbitrating disputes regarding breaches of the GSCOP. The Groceries
(Supply Chain Practices) Market Investigation Order 2009 gives
the OFT broad investigation powers and there is no need for a
further body to have the same or even slightly different powers.
We believe it should be the role of the OFT and not a separate
Adjudicator to undertake investigations.
Nevertheless, in considering the Draft Bill, it is
difficult to effectively comment on some of the specific investigatory
functions of the Adjudicator because guidance relating to:
(a) the criteria that the Adjudicator intends
to adopt in deciding whether to carry out investigations;
(b) the practices and procedures that the Adjudicator
intends to adopt in carrying out investigations; and
(c) the criteria that the Adjudicator intends
to adopt in choosing whether to use the enforcement powers and
which ones
is yet to be published and may only be published
by the Adjudicator within six months of the role coming into force
(Clause 13 (5)). The Bill proposes what is in effect a criminal
offence with penalties, yet the draft Bill does not detail the
investigatory framework and this will, therefore, prevent parliament
scrutinising an important element of the legislation. This is
not consistent with the Government's own principles for better
regulation, and increases the prospect of regulatory creep from
the original intention of such a body.
When the guidance is published it should require
the Adjudicator to ascertain the credibility of a complaint with
the supplier—a pre screening of whether it is in the scope
of the GSCOP and prior authentication of the complaint—before
passing it to the retailer or launching an investigation. There
is a risk that not having an initial filter will distract the
Adjudicator from viable complaints and lead to wasted time and
costs by allowing vexatious claims to be investigated. The scope
to filter out such referrals would allow the Adjudicator to concentrate
resources on any complaints which do appear worthy of investigation.
The Adjudicator or arbitrator should have some discretion
to prevent a retailer incurring the expense and reputational impact
of an investigation into unfounded complaints. The reputational
impact of a complaint for a retailer is significant, whether founded
or not.
There is a high risk that such complaints and investigations
will tie up retailers' businesses, adding direct and indirect
costs to the supply chain. The draft legislation provides suppliers
no disincentive from making speculative complaints—or threatening
to make complaints—in the hope of getting better commercial
terms, or getting the retailer to settle to avoid the publicity
that will surround a complaint. Asda suppliers do not act in such
a way because the mutually agreed practices under the GSCOP have
created strong long-term supplier partnerships.
5. THE APPROPRIATE
LOCATION FOR
THE ADJUDICATOR
It should be noted that the Coalition Agreement stated
that "We will introduce, as a first step, an Ombudsman in
the Office of Fair Trading who can proactively enforce the Grocery
Supply Code of Practice." A new regulatory body, of the type
proposed by the Bill, acting outside of the OFT would add nothing
meaningful to the GSCOP regime and runs the real risk of being
counterproductive to the existing work undertaken by the OFT.
Asda's position is consistent with that of Professor Bruce Lyons,
Professor of Economics at the University of East Anglia and a
former panel member of the Competition Commission Grocery Inquiry,
who considered that the role would be better performed by the
OFT itself, as it is "well placed to refrain from undesirable
intervention because it has an embedded mission to make markets
work well for consumers." The OFT is ideally suited for the
monitoring role as an impartial body with expertise in competition
issues and investigations, and a remit to make markets work better
for consumers.
6. ENFORCEMENT
POWERS, PENALTIES,
APPEALS, AND
FUNDING
In effect, the Draft Bill is proposing a new criminal
offence with enforcement measures and penalties for retailers
that break the Code of Practice. The enforcement measures and
consequences of a retailer being found in breach are severe. The
Adjudicator must, therefore, be satisfied to the requisite high
standard that a breach has occurred with the appropriate standard
of proof parallel to the recognised UK criminal standard for other
enforcement bodies, including the OFT.
The proposed three levels of enforcement clearly
provide the Adjudicator a variety of options. The legislation
should, however, prescribe the maximum level of financial penalty
that the Secretary of State can order.
It is common place in many enforcement bodies to
be able to volunteer to adopt recommendations and to avoid sanctions
before recommendations are made public by the Adjudicator (as
would, for example, be the case under Enforcement Act proceedings).
Recommendations voluntarily entered into tend to be better sustained
in the long term.
As it stands there is no indication of how compliance
with a recommendation will be monitored. The Bill currently provides
a right of appeal against enforcement, but only when a financial
penalty is imposed on the retailer. A right of appeal must exist
across all forms of enforcement measures.
There is also a real risk that retailers will have
to pay for the costs of unfounded and spurious claims. Therefore,
and as stated earlier, the Adjudicator must be able to remove
vexatious claims at the beginning of the process and not be obliged
to investigate. Retailers will be exposed to the illogical position
of settling disputes that go through the Adjudicator process but
are not likely to be upheld simply because the costs of settling
may be less than funding the cost of the investigation itself.
If the costs of investigations are spread across all retailers
(as part of the Adjudicator running costs) then this further exposes
those retailers that abide by the Code of Practice to claims against
other retailers. Either way the proposed funding model would punish
those that adhere to the Code and needs to be revisited.
7. COVERAGE OF
INDIRECT SUPPLIERS
The Adjudicator should be able to receive complaints
from direct suppliers only—the group covered by the GSCOP.
There is no case for complaints from trade associations; indirect
suppliers; anonymous or non-transparent complaints.
The only persons covered by the GSCOP are direct
suppliers and retailers. It would not be possible for a retailer
to be aware of a breach of the GSCOP in relation to indirect suppliers
as it does not have any contractual relationship, nor are indirect
suppliers' dealings covered by the principles of the GSCOP. If
government intends that indirect suppliers should be covered by
the GSCOP, new legislation would need to be introduced to amend
the code. We cannot understand how an indirect supplier not covered
by the GSCOP and with no contractual relationship with a retailer
can allege a breach of the GSCOP in relation to its dealings.
The burden on the Adjudicator, arbitrator and/or
retailer to conduct an investigation into an indirect supplier
complaint would be considerable and was never envisaged by the
GSCOP given that indirect suppliers can often make up only a small
percentage of product content. By way of example we include at
Annex A a table of the 28 indirect suppliers to our direct supplier
of the ingredients for an Asda Ready Meal. We do not have full
details of their suppliers, but we know that the manufacturer
of the Green Thai paste has nine suppliers to it. It would therefore
be relatively easy to identify 60 indirect suppliers for one final
product. This is one example of the complexity of our business,
but there are hundreds more, many of which are outside the UK.
8. POWERS TO
INVESTIGATE ANONYMOUS
REPORTS
We cannot see any evidence that the Adjudicator should
be able to act on anonymous or third party complaints. The Adjudicator's
primary function relates to compliance with the GSCOP and therefore
should only receive complaints from direct suppliers covered by
the GSCOP that are particularised, clearly set out and relate
to a specific breach of the GSCOP. A retailer cannot test its
compliance with the Code if, as defendants in any complaint process,
they do not know the full allegations against them (including
the identity of the claimant), so they can investigate and prepare
a response. The prospect of anonymous complaints which could be
outside the scope of the GSCOP could prejudice retailers' rights
of defence. Such levels of investigations will slow the grocery
market considerably and can only impact consumers negatively.
Therefore, any investigation should be limited to
the retailer alleged to have breached the GSCOP—it should
not involve a "benchmarking" of other retailers' practices,
as this will add unwarranted cost both to the investigating body
and the other retailers investigated and risk homogenisation of
approach by retailers. This issue would again be resolved by the
OFT being the lead on such matters. Asda feels strongly that it
should not be forced to shelve effective supplier engagement practices
on the basis that another retailer uses similar practices but
does not work within the spirit of the GSCOP.
16 June 2011
Annex A
EXAMPLE OF NUMBER OF INDIRECT SUPPLIERS BEHIND
ONE READY MEAL SUPPLIER
Ready Meal Product—Green Thai Chicken Curry
Supplier—Hitchen Foods
| Ingredient | Supplier*
|
| Coconut Milk | Supplier A |
| Roast Chicken Glace | Supplier B
|
| Fish Sauce | Supplier C |
| Lemon Grass | Supplier D |
| Garlic Puree Nuggets | Supplier D
|
| Lime Leaves | Supplier D |
| Salt | Supplier E |
| Palm Sugar | Supplier F |
| Beef Gelatine | Supplier G |
| Cornflour | Supplier H |
| Green Thai Paste | Supplier I
|
| Water | Supplier J |
| Lime Juice Concentrate | Supplier K
|
| Prepared Coriander | Supplier L
|
| Jasmine Rice | Supplier M |
| Water | Supplier N |
| Vegetable Oil | Supplier O |
| Coriander | Supplier P |
| Mint | Supplier P |
| Basil | Supplier P |
| Chicken | Supplier Q |
| Spinach | Supplier R |
| Spinach | Supplier S |
| Spinach | Supplier T |
| Spinach | Supplier U |
| Spinach | Supplier V |
| Spinach | Supplier X |
| Spinach | Supplier Y |
| Pak Choi | Supplier R |
| Pak Choi | Supplier AA |
| Pak Choi | Supplier AB |
| Pak Choi | Supplier AC |
| Pak Choi | Supplier AD |
| Pak Choi | Supplier Y |
| Red Onion | Supplier AF |
| Red Onion | Supplier AG |
| Red Onion | Supplier AH |
| Red Pepper | Supplier AI |
| Red Pepper | Supplier AJ |
Hitchen Foods, the primary vendor, has 28 suppliers supplying
raw material for just this product.
Taking the Green Thai paste as an example of a composite ingredient,
there are nine suppliers of the sub-ingredients that make up the
paste.
* Supplier details are anonymous for reasons of commercial confidentiality
| 
