Written evidence submitted by the Co-operative
Group
1. INTRODUCTION
1.1 The Co-operative Group is the largest consumer
co-operative in the world with in excess of six million members
and 120,000 employees in the United Kingdom across its diverse
business interests of healthcare, travel, food retailing, insurance,
farming, funeral service provision, banking, legal services and
motor dealerships.
1.2 The Co-operative Group's food business, a
pioneering champion of customers since its formation in 1844,
is one of the largest five food retailers in the country comprising
nearly 3,000 stores, be they convenience outlets or supermarkets,
the length and breadth of the UK.
1.3 Owned by the very people who shop with us,
the best interests of consumers must be, and are, the foundation
of our business and business model. We are committed to delivering
the best possible retail offer we can for our members and customers
who come into our stores day in and day out. In order to deliver
this we have sought to establish partnerships with our suppliers
which, although requiring them to be highly efficient in their
costs, production and logistics management also incentivise them
to innovate. We aim to deal fairly with all members of the supplier
community and believe that we do so now and will continue to do
so in the future.
2. NEED FOR
THE GROCERIES
CODE ADJUDICATOR
AND CODE
COMPLIANCE TO
DATE
2.1 The Co-operative Group supported the establishment
of GSCOP but has consistently rejected the need for the creation
of a separate body to oversee its functioning; we remain unconvinced
that it is justified. We recognise, however, that the purpose
of this Inquiry is to scrutinise the draft Bill which will establish
the Adjudicator rather than to continue to debate its desirability
.Through our evidence to the Committee, both written and oral,
it is our intention to help ensure that the Adjudicator is as
efficient, effective and focused as possible.
2.2 The Committee should consider the operation
of the Code to date and reflect on the levels of compliance already
demonstrated by retailers. The Co-operative Group has not received
any formal complaints from suppliers under the Order or the Code
thus far. It should also be recognised that further evidence of
levels of compliance will become publicly available over the coming
months as large retailers include GSCOP compliance information
in their annual report and accounts; The Co-operative Group will
include this information in its annual report and accounts in
the spring of 2012.
2.3 The Co-operative Group has invested significantly
in a GSCOP compliance regime diligently monitored by its Internal
Audit function. A detailed audit program has been developed which
aims to test buyer compliance against the various aspects of the
code. For the 12 month period up to the end
February 2011 we completed audits with nine food suppliers and
one healthcare supplier. The plan for 2011 is for completion of
audits across a further eight food suppliers and one healthcare
supplier. At June 2011 we are in line with our plan. All our buyers
(and some 400 others) were trained prior to the inception of GSCOP
by our Legal team and annual refresher training took place in
September 2010. An update is due in September 2011.
2.4 Our buyers use the "red flag" process—if
the buyer thinks there is likely to be an issue or is uncertain
about the right course of action then they can "red flag"
it to Legal. Once a matter has been red flagged then the GSCOP
compliance team gets launched (Legal, Internal Audit and Food
Commercial Support) in order to advise at the earliest stage possible.
3. FUNCTIONS
AND POWERS
OF THE
ADJUDICATOR
3.1 GSCOP was proposed by the Competition Commission
and came into force "to curb abuses[20]
of power in the groceries supply chain and protect the long term
interests of consumers"; it was the considered solution of
the Competition Commission following a detailed and meticulous
two-year inquiry. We do not believe, therefore, that it is appropriate
for the draft Bill to furnish the Adjudicator with functions and
powers beyond those necessary to "enforce" GSCOP. GSCOP
was the Commission's chosen remedy to ameliorate the identified
adverse effect on competition within the groceries supply chain,
and the effective implementation of that remedy, through the investigation
of alleged GSCOP breaches by large retailers, should be the focus
of the Adjudicator and nothing more (beyond, of course, the arbitration
role previously foreshadowed in the GSCOP Order).
3.2 The Adjudicator should, therefore, concern
itself with the following activities only:
— to
act as an arbitrator to formally hear disputes as to code breaches
brought forward by direct suppliers against the retailers concerned;
— to
investigate allegations of breach made by direct suppliers, having
established a framework for the proper conduct of those investigations;
and
— to
take action against any large retailers who are found to have
breached the Code.
3.3 When any new public body is established there
is a danger of regulatory creep as Professor Lyons of the Commission
foresaw. We are anxious that this should not be the case with
the Adjudicator and would therefore encourage the Committee to
focus on ensuring that the draft Bill provides the Adjudicator
only with the functions and powers it needs to ensure compliance
with the Code in the manner we describe and nothing more.
3.4 We believe that the Adjudicator should publish
Guidance on the conduct of investigations at the earliest opportunity
after detailed consultation with the large retailer audience.
If the Adjudicator is to operate fairly and efficiently it should
be as transparent as possible.
3.5 The Co-operative Group is unconvinced that
it will be necessary for the Adjudicator to publish further guidance
beyond that which covers the conduct of investigations (Clause
13 (1)) or to give advice on any GSCOP-related matter to suppliers
or large retailers (Article 12). This will only increase costs
unnecessarily given the presumed sophistication of the large retailer
population, and we had not foreseen the Adjudicator constituting
a "free advice" centre for suppliers who will be perfectly
able to take advice on GSCOP from other sources at their own cost.
We believe that the primary focus of the Adjudicator must be to
investigate potential breaches of GSCOP and that it should devote
its time and resources to the pursuit of this goal.
4. COVERAGE OF
INDIRECT SUPPLIERS
4.1 We do not support the right of indirect suppliers
to make complaints to, or to receive advice from, the Adjudicator
nor to have a right to be consulted in the course of the Secretary
of State's review of the Adjudicator's performance. As raised
previously, the Competition Commission recommended the establishment
of the Code (and enforcement body) to address specific concerns
about the relationship between large retailers and direct suppliers,
no recommendation was made regarding the inclusion of indirect
suppliers. The shift to allow indirect suppliers the right of
complaint to the Adjudicator was not deemed necessary by the Competition
Commission and, in the absence of a compelling evidence base,
should be removed from the draft Bill. The definition of "supplier"
in Clause 23 should remain consistent with that defined in Article
2 of the Groceries Supply Order.
4.2 It is our belief that, in the overwhelming
majority of instances, indirect suppliers will not have access
to sufficient information to assess whether or not a breach of
GSCOP has occurred nor will they be able to ascertain whether
a particular "wrong" they believe they have suffered
has ultimately been as a result of the behaviour and practices
of a large retailer or of some other body or enterprise not in
scope to GSCOP. The direct supplier is in the best position by
far to make an assessment of GSCOP's operation and to determine
whether invoking the Adjudicator's powers is, in all the circumstances,
in the best interests of the supply agreement to which it is party—behaviour
and conduct may appear quite different to those who are only indirectly
involved in negotiations and contract fulfilment.
5. ANONYMOUS
REPORTS
5.1 We accept that some complaints (most probably
those brought by small direct suppliers), on inception,
may need to be made anonymously, but very much doubt whether
anonymity should be maintained throughout the course of any investigation
undertaken by the Adjudicator.
5.2 Consistent with the principles of natural
justice, we do not expect investigations to proceed under the
cloak of anonymity. The conduct of an investigation, whilst the
identity of a complainant is withheld from a large retailer, may
well (i) involve significant additional and unnecessary costs
as a result of the "disguise" of the supplier that the
Adjudicator chooses to adopt, and (ii) simply prevent the issues
the subject of complaint being dissected and analysed fairly given
the likelihood of their being fact rich and large retailer specific.
6. APPROPRIATE
LOCATION FOR
THE ADJUDICATOR
6.1 We agree that the Office of Fair Trading
is the appropriate location for the Adjudicator.
6.2 The OFT has a high degree of familiarity
with the grocery sector and GSCOP and is well accustomed to investigations
and complaints. The draft Bill as it currently drafted provides
for the Adjudicator to simply share the premises of the
OFT, we believe that it should actually be part of it (and
any successor organisations ie the new Competition and Markets
Authority).
7. ENFORCEMENT
POWERS, PENALTIES,
APPEALS AND
FUNDING
7.1 The Co-operative Group believes that whilst
the Adjudicator needs to have "teeth" through the enforcement
options open to it, it is essential that these are fair, transparent
and proportionate.
7.2 The publication of investigation reports
by the Adjudicator (Clause 6 of the Draft Bill) is an important
means by which to promote transparency of the Adjudicator's activities
and to shed light on breaches of GSCOP. The draft Bill currently
allows large retailers the right of comment only if they are identified
in the investigation report (Clause 6 (4)), we believe that a
large retailer should be allowed the right to comment irrespective
of whether they are identified or not.
7.3 We believe that the proposal to allow the
Adjudicator to levy financial penalties upon retailers (Clause
10) is disproportionate and runs the risk of having consumers
carry some of the "pain". The objective of GSCOP (and
of the Adjudicator in enforcing GSCOP) is to ensure that the adverse
effect on competition identified by the Competition Commission
is ameliorated. The Adjudicator will have the power to make recommendations
and to "name and shame"—we believe that these
two options will be sufficient to ensure strong compliance with
GSCOP. It is worth noting that there will be financial costs to
a retailer found to be in breach of the GSCOP since they will
be liable for the costs of the associated investigation and they
may also "pay" in subsequent years if the Adjudicator
adjusts the amount of levy to be paid by each retailer (Clause
20 (5)).
7.4 The draft Bill provides for each large retailer
to pay the same levy to fund the Adjudicator at the outset (Clause
20 (5)) whilst we do no think this is fair we recognise that at
least initially it is a simple and transparent funding option.
In the short-term, however, we believe that the option open to
the Secretary of State to require large retailers to pay differing
amounts should be pursued. This option allows for criteria reflecting
the time and expense the Adjudicator expects, based on experience,
to incur in dealing with matters relating to the ten large retailers.
7.5 There should be a right of appeal in respect
of the Adjudicator's findings at the end of investigations, rather
than just in relation to the level of any financial penalty imposed
or any order as to costs made. A judicial review remedy alone
is inadequate.
16 June 2011
20 Written Ministerial Statement from the Department
of Business, Innovation and Skills-Ed Davey MP-24 May 2011 Back
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