Written evidence submitted by the British
Retail Consortium (BRC)
1.0 INTRODUCTION
1.1 The British Retail Consortium (BRC) is the
trade association of the retail sector and is the authoritative
voice of the industry to policy makers and to the media. The BRC
brings together the whole range of retailers across the UK, from
independents to large multiples and department stores, selling
a wide selection of products through centre of town, out of town,
rural and online stores.
1.2 Our membership includes all the major food
retailers, including nine of the 10 companies covered by the Groceries
Supply Code of Practice (GSCOP) and, therefore, potentially the
Adjudicator, who between them account for 90% of the UK's grocery
sales. The company not in BRC membership is Lidl.
1.3 One of our members, Waitrose, held a different
view to others on the need for the Adjudicator. Waitrose, however,
are in general agreement with other members regarding the specific
operations of the Adjudicator in the Bill, particularly regarding
its functions, powers and location. Their position is explained
in more detail in their written submission to the Committee.
1.4 Retailers supported the launch of GSCOP and
its appropriate enforcement. Whilst our preference would not have
been for a separate body to oversee GSCOP our evidence concerns
itself more with the process and operation of the proposed body.
In particular our concern focuses on two main issues.
— The
lack of guidance on how the Adjudicator would use complaints from
anonymous or indirect suppliers and in particular more details
of a threshold which would trigger investigations.
— The
practical problems in responding to anonymous complaints and those
from indirect suppliers.
These concerns are raised to ensure the Adjudicator's
role is clearly defined to oversee the operation of GSCOP and
does not add unnecessary burdens to retailers and their supply
chains.
2.0 NEED FOR
THE GROCERIES
CODE ADJUDICATOR
2.1 Having invested heavily in training and compliance
with GSCOP, our members believe it would have been better to reflect
on the success of the Code before introducing an Adjudicator.
We are pleased the Committee is examining the operation of GSCOP
to date as that will demonstrate the protection this affords to
suppliers and the high level of compliance by retailers. That
said, we understand the political support for the Bill and have
therefore restricted our comments to the practical operation of
the Adjudicator in line with the topics raise by the Committee.
2.2 In terms of operation of GSCOP our members
will be giving their annual reports to the OFT over the next few
months, but our understanding from discussions with them is the
Code is working well and has not led to major problems for either
retailers or suppliers which could not be resolved using the existing
provisions. Companies have worked closely with their suppliers
and invested in extensive and ongoing training for their buying
staff. They have developed transparent complaint procedures enabling
suppliers to directly contact dedicated compliance officers and
worked closely with suppliers. This has driven compliance but
if issues do arise there is a clear route for suppliers to raise
concerns. The compliance officers are dealing with complaints
but they have all been resolved internally, without the need for
independent arbitration.
3.0 FUNCTIONS
AND POWERS
OF THE
ADJUDICATOR
3.1 We do not object to the functions as suggested,
our concern is how the Adjudicator would carry these out and,
in particular, how thresholds will be set to determine what information
would trigger further investigations.
3.2 The role of guidance to the Adjudicator on
how to deal with investigations and enforcement will be crucial.
Without robust procedures to determine what processes the Adjudicator
follows it will create unnecessary and unwarranted costs. Clause
13 sets out the need for guidance but we believe it should be
more explicit. It should set out the thresholds that would need
to be met before the Adjudicator undertakes an investigation.
The guidance should be the subject of consultation to ensure the
criteria is proportionate and available before the Adjudicator
begins to operate, not within six months as proposed. Only in
this way will all parties know that investigations are the exception
not a regular exploratory exercise for the Adjudicator. The need
for guidance is emphasised by the proposal for the Adjudicator
to take evidence from indirect suppliers and anonymous complaints,
which we cover in more detail in the sections below.
3.3 On arbitration, our concern is that the Adjudicator
is competent, which presumably will be covered by the specification
of the role and the point in the explanatory notes regarding conflict
of interest. On this second point we would welcome more guidance
on how a retailer could appeal against the appointment of the
Adjudicator as arbitrator. Advice to suppliers should remind them
of the need to exhaust the usual remedies through GSCOP before
requesting arbitration.
3.4 Similarly, in principle we agree that the
Adjudicator could make recommendations to the OFT regarding changes
to GSCOP. However, we would want the OFT to consult interested
parties on any changes to ensure a thorough examination of the
recommendations.
4.0 COVERAGE
OF INDIRECT
SUPPLIERS
4.1 We have significant concerns that encouraging
complaints from indirect suppliers will increase the number of
spurious investigations where there has been no breach of the
Code by any retailer, thus imposing unnecessary burden and costs
on the sector.
4.2 The problem lies in the way major retailers'
supply chains are structured and the influence they may or may
not have over indirect suppliers. Retailers' suppliers are generally
large food manufacturers and processors. These companies source
from farmers and other small producers who will make up the bulk
of indirect suppliers who might contact the Adjudicator. The problem
is that as well as supplying to retailers those intermediary manufacturers
and processors are also supplying other customers such as the
hospitality sector, other manufacturers or the Government's own
procurement. This makes it difficult to determine the influence
of a single retailer, particularly if the complaint is solely
linked to the conditions of GSCOP. It is interesting that the
BIS policy document on the Adjudicator recognises there is no
need for complaints from third party associations as they would
not have sufficient knowledge of contractual matters. We fail
to see why an indirect supplier divorced from the contract would
be in any better position to complain.
4.3 A good example of this is the dairy chain.
There are thousands of dairy farmers in the UK sending their milk
to dairies to be processed. That dairy could have a variety of
customers some for milk to be further processed or some for liquid
milk. Those customers might be retailers covered by GSCOP or they
might be manufacturers, retailers not covered by GSCOP, hospitality
sector or the Government's own procurement. We believe it will
be impossible for an individual farmer whose milk is mixed with
hundreds of other farmers to identify that a breach by a retailer
has occurred.
4.4 We believe many indirect suppliers will complain
to the Adjudicator based not on any evidence of a breach of the
code but instead based on general misconceptions of how the food
chain operates. Such misconceptions are often exacerbated by the
claims of particular interest groups. For example, it has been
reported that the Adjudicator will help increase farm prices even
though price is not an issue covered by GSCOP. Each of those enquiries
will need to be checked and answered. A concerted campaign by
indirect suppliers will put additional pressure on the Adjudicator
to investigate a particular supply chain thus increasing the unnecessary
costs and burdens on retailers.
4.5 We believe unless clear and early guidance
is given on the type of information from indirect suppliers that
the Adjudicator will accept and making it clear this has nothing
to do with increasing farm prices, there will be a large volume
of spurious enquiries.
5.0 ANONYMOUS
REPORTS
5.1 We are extremely concerned about this proposal
for two reasons. Firstly, it removes the rights of natural justice
and secondly it potentially adds significant regulatory burdens
to retailers in meeting the Adjudicator's investigative requirements
whilst preserving anonymity.
5.2 The explanatory notes to the Bill explain
that the Government has considered the anonymity issue in relation
to human rights legislation but decided to pursue it to protect
suppliers. We are concerned that the reliance on anonymous complaints
will prejudice the rights of defence of the retailer. By screening
the identity of complainants, a retailer will be unable to properly
respond to an allegation against it. This may, in turn, undermine
the credibility of the process. We query whether such an approach
is ultimately compatible with the right to a fair trial under
the Human Rights Act. GSCOP already gives protection to all suppliers
who raise complaints, not least through clear provisions against
unjustified de-listing and we feel this negates the need to ignore
human rights legislation.
5.3 Supermarkets are supplied by a relatively
small number of suppliers for any final product. In order to preserve
the anonymity of the complainant within a small pool of suppliers,
additional, disproportionate controls will need to be put in place.
In discussions with officials about this they have suggested that
the Adjudicator could ask questions or request information about
a range of product categories in order to preserve anonymity.
Widening the scope of an investigation obviously has resource
consequences as the retailer would need to supply information
about dealings with a number of suppliers, despite only one making
the complaint.
5.4 An example demonstrates the practical complexity
of this problem. If a carrot supplier complained to the Adjudicator
and he decided to pursue that complaint he would have to find
a way to obtain the information from the retailer without disclosing
the carrot supplier's identity. As there are relatively few carrot
suppliers it would be clear who that was if they were described
as such so the Adjudicator would have to hide his identity amongst
other suppliers. So the Adjudicator could ask for details of recent
trading practices with all vegetable suppliers to ensure anonymity.
That would maintain anonymity but at the same time require the
retailer to examine thousands of records of correspondence and
meetings with a number of companies to provide material that is
only relevant to one complainant, which may not in itself lead
to a further investigation.
5.5 The example demonstrates that preserving
anonymity will add substantially to the burden on the retailer,
rather than targeted enforcement which is a principle of better
regulation. It would be better for all parties, in terms of speed
and accuracy of response to know who the supplier is. The supplier
has the protection of GSCOP and the knowledge that the Adjudicator
will investigate the case on their behalf.
6.0 APPROPRIATE
LOCATION FOR
THE ADJUDICATOR
6.1 We agree that the ultimate location of the
Adjudicator should be within the OFT initially and then the new
Competition and Markets Authority. This would be seen as a more
accountable structure and one which retailers will be familiar
through other issues. It should ensure greater co-ordination as
this body would be responsible for market investigations in the
supply chain.
6.2 Currently the proposal is simply to share
the premises of the OFT to share some costs. The Adjudicator does
not report to anyone within the OFT, it sets its own budget and
can carry out its functions independently so in many ways it could
share an office anywhere to share costs.
6.3 We believe in terms of better regulation
the Adjudicator should be more directly integrated into these
organisations. This would enable it to share best practice. For
example, the OFT has dealt with the Code and has considerable
expertise and experience in investigation. Moreover, the OFT is
consumer focused and the Code is ultimately about serving the
interests of consumers.
7.0 ENFORCEMENT
POWERS, PENALTIES,
APPEALS AND
FUNDING
7.1 In principle we accept the proposed enforcement
powers, provided that the criteria for using these powers is proportionate
and that there are fair processes in place to provide adequate
right to appeal and to avoid unnecessary costs or the risk that
undue enforcement might occur. To this end it is essential that
retailers are involved in developing the criteria for using enforcement
powers and guidelines are published before the Adjudicator is
established.
7.2 We feel there should be more rigour to challenge
a final investigative report. We note there would be an opportunity
to comment on the final draft but there should be a further appeal
beyond the Adjudicator if the retailer felt their comments had
not been appropriately dealt with. This would be particularly
important where the Adjudicator might use its enforcement powers
to require a retailer to publish the report, which would have
a detrimental effect on that retailer's brand.
7.3 We believe the proposal to levy financial
penalties would be a disproportionate power. We need to remember
that the basis of the original Competition Commission inquiry
which led to GSCOP and the Adjudicator proposal was to ensure
a UK food market that functions for the benefit of consumers not
to penalise retailers. We believe the Code is sufficient in itself
to achieve that and, if more pressure were required, there are
the two enforcement powers of recommendations and naming and shaming.
It is disproportionate to then levy financial penalties on top
of those powers which would identify and correct any breaches
in the Code, any more would simply be to punish retailers. Also,
we should not forget that the supplier has the right to try and
obtain further remedy if a breach is confirmed.
7.4 We have already stressed the need for robust
guidance for the Adjudicator to ensure that unnecessary costs
and burdens are avoided.
7.5 We believe the area where most unnecessary
costs could potentially be produced is the investigation of perceived
breaches of GSCOP. Our concern is not that investigations will
lead to identification of breaches. It is that they will add enormous
burden and cost to retailers when there is no problem. We believe
it is inevitable the Adjudicator will be pressured into investigations
to satisfy the demands of interested groups. This will be particularly
an issue where complaints from indirect suppliers are permitted,
a point we discussed in more detail earlier.
7.6 The point about investigations has an important
bearing on the costs of the Adjudicator and the costs and burdens
to retailers. If these investigations do not, as we suspect, lead
to identifying that a retailer is in breach of GSCOP they will
be an unattributable cost that would then be shared across all
10 retailers covered. We support the approach of recouping costs
from vexatious complainants but imagine that would be extremely
difficult in the case of an indirect supplier.
7.7 In terms of budgetary control we are concerned
that there is a lack of scrutiny in the process. It needs to be
remembered that the proposal is, with a small exception to help
through temporary cashflow problems, for the Adjudicator to be
funded solely by 10 retailers. We do not understand, therefore,
why there is no preliminary and then annual review with retailers
on the budget. Currently the only possible challenge is the three-yearly
Secretary of State review. Our view in light of the Government's
better regulation agenda is there should be more challenge available
to those that will be funding the Adjudicator to prevent unnecessary
costs being passed to the retailer and ultimately the consumer.
7.8 Our concerns on costs and funding are reinforced
by the assumptions made in the regulatory impact assessment. The
current regulatory impact assessment of £200,000 set up cost
and £800,000 running costs are likely to be an underestimate
and unrealistic. To avoid poor regulation, we need more surety
on the way the Adjudicator will operate and run its affairs combined
with a role in scrutinising its budget. Taking into account our
concerns that the current regulatory impact assessment appears
massively conservative we believe it would be reassuring if the
Government were to cap the maximum level of funding from the 10
retailers at £800,000 and commit to meet and additional funding
requirements.
15 June 2011
| 
