Written evidence submitted by Waitrose
This document sets out Waitrose's support for the
introduction of the Groceries Code Adjudicator (GCA). It also
stresses the importance of agreeing an effective funding mechanism
to encourage and incentivise compliance with the Groceries Supply
Code of Practice (GSCOP).
1.0 INTRODUCTION
1.1 Waitrose welcomes the opportunity to respond
to the Draft GCA Bill published by the Department for Business,
Innovation and Skills (BIS) in May 2011. The views represented
are the views of Waitrose supermarkets, a division of the John
Lewis Partnership.
1.2 Whilst there are areas of general agreement
with elements of the BRC's submission on the GCA Draft Bill, Waitrose
has adopted a different stance to many of its competitors on the
establishment of the GCA.
1.3 Waitrose has been fully supportive of the
proposal for a body to monitor and enforce GSCOP and the Competition
Commission's recommendations regarding the body's powers and duties.
1.4 Waitrose also believes the Competition Commission's
proposed funding formula provided an appropriate way of calculating
each party's share of the body's costs, as it allows for the costs
to fairly relate to the number of complaints being made against
each retailer. This approach is based on the principle of encouraging
compliance with the Code, which we fully support and commend.
1.5 Waitrose believes it's vitally important
for the successful enforcement of GSCOP to encourage and incentivise
compliance. We would urge BIS to ensure that this remains at the
heart of GSCOP and the enforcement body.
1.6 Because we believe this is so important,
we have set out in detail our thoughts on funding which will play
a vital role in compliance.
2.0 NEED FOR
THE GROCERIES
CODE ADJUDICATOR
2.1 Waitrose has consistently supported the proposal
for a body to oversee the monitoring and enforcement of GSCOP.
2.2 Our starting principle is one of fair and
robust regulation of supplier-retailer relationships. We have
therefore welcomed GSCOP and believe it is essential to establish
a body to monitor and enforce compliance. This will ensure customers
have access to the best possible quality and range of food that
has been ethically sourced—a principle that underpins our
business.
2.3 As stated in our consultation response submitted
to BIS in September 2010 (copy attached for ease of reference),
we were supportive of the oversight and enforcement role being
awarded to the Office of Fair Trading (OFT) rather than the establishment
of a new body. Whilst we would have preferred the body to be absorbed
into the OFT, we understand the Government's rationale for creating
a body that is independent of the OFT while the UK's competition
regime is under review.
3.0 FUNCTIONS
AND POWERS
OF THE
ADJUDICATOR
3.1 Waitrose agrees in principle with the points
made in the BRC's submission concerning the GCA's functions and
powers.
3.2 Waitrose would welcome input to the specification
of the role of the GCA. We also feel there should be a mechanism
to ensure that there is no conflict of interest between the GCA,
relevant third parties, relevant suppliers and grocery retailers.
3.3 Waitrose is content that the point on guidance
is covered under clause 13 of the draft Bill. We would be supportive
of large retailers being invited to input to the guidance.
3.4 Waitrose strongly agrees that there should
be an initial and annual review with retailers on the budget.
The ethos of the GCA is to encourage compliance, therefore the
funding mechanism should encourage and reward responsible behaviour.
Please refer to section 5 for further detail.
3.5 On the estimate of the set up and ongoing
costs, Waitrose echos the BRC's sentiment about the accuracy of
the forecast. Please refer to further comments in section 5.7.
4.0 APPROPRIATE
LOCATION FOR
THE ADJUDICATOR
4.1 As stated in our earlier consultation response,
whilst Waitrose would have preferred the body to be part of the
OFT, we recognise the imminent regime changes for the UK competition
authorities. We therefore support the intention for the GCA to
be part of the Competition and Markets Authority (CMA) when established.
4.2 Waitrose agrees with the BRC's point on optimising
opportunities to integrate the GCA into the OFT/CMA to ensure
the most cost-effective solution.
5.0 FUNDING—PRINCIPLES
OF ALLOCATION
5.1 Waitrose considers that the apportionment
of the funding of the Adjudicator should seek to reflect the contribution
of each of the retailers to the costs of the Adjudicator in accordance
with the "polluter pays" principle. It therefore welcomes
the recognition in the Explanatory notes accompanying the draft
Bill that retailers who breach the Code should contribute more
to the costs.
5.2 However, Waitrose considers that an opportunity
has been missed to implement this principle from the outset. It
will clearly not be achieved through the proposal in the draft
Bill for the costs to be split equally between each of the retailers.
Moreover, the current proposal fails to incentivise a retailer
to comply with the Code through the imposition of an increased
share of the Adjudicator's costs on non-compliant retailers.
5.3 Waitrose has previously supported the adoption
of the Competition Commission's proposed formula, including in
its submissions to the BIS consultation. The Policy Statement
accompanying the draft Bill suggests that the formula would not
accurately reflect the costs associated with each retailer and
that there is insufficient evidence to suggest a relationship
between the turnover of a retailer and the extent to which it
breaches the Code. It also notes that the formula fails to take
into account that investigations are likely to be of varying lengths
and scale.
5.4 However, the Policy Statement fails to acknowledge
that the formula was developed after a lengthy investigation by
the Commission, and indeed the Commission expressly found a link
between market share and breach to exist, noting at paragraph
11.410 of its Report that:
"the ability to pass excessive risks and
unexpected costs on to suppliers is a function of buyer power,
and that buyer power is, in large part, a function of the size
of the retailer."
5.5 Paragraph deleted.
5.6 If a formula like the Commission's is not
considered appropriate at this stage, Waitrose therefore considers
there to be sufficient evidence to support a funding model which
apportions costs in accordance with market share from the outset
(as a proxy for contribution to the Adjudicator's costs).
5.7 Waitrose considers the cost estimates set
out in the Regulatory Impact Assessment to be significant underestimates
of the relevant costs associated with investigations, as well
as monitoring and enforcement costs. However, any difficulty regarding
the variable nature of investigations could be avoided by applying
the same costs principle to investigations that the draft Bill
applies in relation to disputes, namely that the investigated
retailer would meet the costs of the investigations unless the
investigation was found to be vexatious or entirely unmeritorious.
This would have the added advantage of incentivising retailers
to co-operate with investigations and bring them to a speedy conclusion.
6.0 FUNDING—REVIEW
AND DETAIL
6.1 Even if it is not possible to introduce a
funding model on the "polluter pays" principle from
the outset, Waitrose considers it essential that there be a
mechanism by which the funding model can be reviewed and amended
in light of further evidence. It therefore supports the recognition
on the face of the draft Bill that the Secretary of State should
be empowered to amend the funding model by way of order (and indeed
would question whether it would be more appropriate to have the
detail of the funding model and procedures for the levy addressed
through sub-ordinate legislation from the outset).
6.2 However Waitrose remains concerned that there
is no express requirement for the Secretary of State actually
to review the funding model at any stage. The review provisions
within clause 13 appear not to extend to funding and, in any event,
it is clear that there will be a need for the funding model to
be reviewed before three years.
6.3 Waitrose would therefore invite the committee
to propose an express statutory requirement for the funding
model to be reviewed after one year of operation (and annually
thereafter) in consultation with the Adjudicator and the retailers.
6.4 Such mandatory annual review is in line with
the Government's own guidance. As specified in Public Bodies:
a Guide for Departments, "fees and charges should
normally be reviewed annually" [6.2.4].
6.5 In addition, and largely irrespective of
the funding model adopted, Waitrose would also welcome confirmation
of the following levy procedures on the face of the Bill:
(a) that the levy will normally be imposed and
collected annually—Waitrose understands that it may be necessary
in some circumstances for an interim levy to be imposed, but this
should be restricted to specified circumstances where there are
insufficient funds for the Adjudicator to carry own to the next
annual levy date;
(b) that the details of the levy and the explanation
of how it has been derived will be published at least three months
before the imposition of the levy—Waitrose also considers
that it would be appropriate to allow retailers a formal opportunity
to comment on the proposed levy before it is publicised (at least
in the first year and any year where it is increased by more than
10%, in accordance with the original proposals by the Competition
Commission);
(c) that the Adjudicator may only impose a levy
in relation to past expenses and estimated expenses for a 12-month
period, otherwise there is a risk that the Adjudicator may seek
funds for an extended period;
(d) that the set-up costs will be recovered over
a three-year period in accordance with a proposal by BIS officials
at our most recent meeting; and
(e) that the Adjudicator will be required to
refund any surplus to the retailers on an annual basis—this
should not be optional as currently suggested by the draft Bill.
6.6 Again, Waitrose would suggest that these
matters would be better addressed through sub-ordinate Regulations
rather than on the face of the Bill.
7.0 COVERAGE
OF INDIRECT
SUPPLIERS AND
ANONYMOUS REPORTS
7.1 As per our previous consultation response
(attached for ease of reference), Waitrose supports the body's
consideration of complaints from indirect suppliers and relevant
anonymous sources who are not directly protected by GSCOP. This
is in contrast to the BRC's position. However, we feel such complaints
should be handled in a way that doesn't give rise to excessive
costs.
7.2 It is imperative that the Body uses a filtering
mechanism to ensure that it only investigates complaints which
it considers to be meritorious, whatever the source of the complaints.
This will enable the most effective use of resources and minimise
costs.
7.3 It is important that the same principle is
applied to costs associated with investigations into complaints
from indirect suppliers and anonymous sources as in relation to
disputes. We believe that the resulting costs should be met by
the investigated retailer only, not spread equally across all
retailers.
8.0 ABOUT WAITROSE
8.1 Waitrose is a national supermarket operator,
operating 256 branches in the UK grocery market. Waitrose also
has an e-commerce grocery business (Waitrose Deliver) and an export
business.
8.2 Waitrose believes that few things in life
are more important than the food we buy ourselves and our families
and that good, healthy food is one of life's great pleasures.
Waitrose's mission is to be the best quality food and wine retailer
for its customers.
8.3 Waitrose employs over 45,000 people across
the UK and they are all co-owners of the John Lewis Partnership.
8.4 Waitrose has a strong commitment to treating
its suppliers fairly. For example, our farmers are paid the fairest
price, including a significant premium to cover the cost of additional
work to achieve and maintain our high standards and to allow them
to re-invest in their farms.
15 June 2011
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