Tesco accused of delaying supplier probe

An earlier probe of the relationship between the 'big four' UK supermarket groups (Tesco, Asda, Sainsbury and Safeway/Morrisons) and their suppliers by the Competition Commission led to the creation of the (voluntary) Supermarket Code of Conduct in 2000, but the Code has long been criticised for failing to do enough to protect suppliers - and in particular smaller suppliers - from the increasing might of the retailers.

Although it stopped short of admitting that the Code was ineffective, the OFT agreed that a further investigation of the relationship between suppliers and retailers was needed, but it is a year since the OFT made that announcement​ and the results are yet to be seen. They were due to be published at the end of 2004.

According to a report in the Financial Times​ the probe has partly been delayed by Tesco, which was accused by rival retailers and industry lobbyists seeking tighter restrictions on supermarkets' buying power of deliberately dragging its feet.

The retailer denied that it had deliberately delayed the process, saying simply that there had been difficulties in providing the OFT with the information it required because the records were not centralised and had to be collated from a number of different sources.

The OFT's latest investigation was prompted by consultations with suppliers and trade associations which showed a high level of dissatisfaction - 80 to 85 per cent of respondents claimed that the Code had failed to bring about any change in the supermarkets' behaviour. However, since no official complaints had been made there was only "anecdotal evidence"​ to show that the Code was not working, and that a further investigation was needed.

Although the OFT's consultation revealed such alleged abuses of the Code as delayed payments to pay suppliers, a requirement to contribute to marketing costs and the retrospectively changing of contracts, it also found that 73 per cent of suppliers were afraid to complain because of the risk of losing a listing for their products.

The OFT conducted what it called a 'focused compliance audit' of each of the four supermarkets' dealings with suppliers, focusing primarily on those clauses of the Code that received the most widespread level of complaint during its initial review. It is this audit which Tesco is accused of delaying.

Tesco's delays - whether deliberate or not - simply serve to highlight the weakness of the current system, its opponents argue. A voluntary system is much more open to abuse, especially given the wording of the current Code which is based on "reasonableness" - an expression inserted at the request of the supermarkets and vague enough to be open to a myriad of interpretations.

Supplier groups hope that the latest OFT probe will result in the creation of a statutory code of conduct, or at least an independent watchdog with real powers to police the powerful retail sector. It is the fear of just this eventuality, they claim, that has prompted Tesco's alleged foot dragging.

But opponents of the Code may still not get the tough regulations they want, with the government thought to be considering the introduction of a 'buyer's charter' to replace the voluntary system. This would also cover large-scale food processors, as well as the wider food retail sector (and not just the four largest players).

Whatever the government decides to do with the data gathered by the latest OFT investigation - data which should finally be released in the next few weeks - lobby groups remain highly sceptical.

Sandra Bell, food and farming campaigner for Friends of the Earth, said that it was highly unlikely that the OFT probe would reveal any evidence of wrongdoing. "[Assessing supermarkets' records] will fail to uncover the full truth about the way the retailers bully suppliers because so much business is done verbally. Nor will the audit be able to pick up on the climate of fear which clearly exists amongst suppliers dealing with the biggest supermarkets."​

Any system - whether the current Code or a future buyer's charter - which relies on mediation to solve the disputes between retailers and suppliers will always be ineffective, said FoE, because the balance of power is unfairly stacked in favour of the retailers.

But statutory codes are not ideal either, as is clear from the experiences of retailers and suppliers in France. They have recently called for a change to the restrictive loi Galland​ which governs their commercial relationships and which they claim has kept prices artificially high by preventing retailers from passing on negotiated discounts to their customers.