Retail giants agree to play fair on food

Sid Maher
November 18, 2013
The Australian

THE supermarket giants have agreed to tough restrictions on how they use their market power when dealing with suppliers, in an agreement with food producers that gives the competition watchdog greater oversight over harsh bargaining tactics. Coles, Woolworths and the Australian Food and Grocery Council will announce today a new code of conduct that includes restrictions on the major chains’ ability to change agreements with suppliers, and sets out guidelines for the treatment of branded and home-branded products.

The agreement has produced a voluntary code between the two major retailers and the peak body but Small Business Minister Bruce Billson hopes other retailers and suppliers, such as farmers, will also sign on.While the code is voluntary, it will be included in the Competition and Consumer Act, with Mr Billson warning that if it fails to meet expectations, the government may take its own action.The Australian revealed last month that Mr Billson was putting the supermarket giants on notice over harsh bargaining tactics that damage food producers, as part of moves to help the industry fight back against cheap imports. The government is already planning a review of competition policy, to be conducted next year. Coles and Woolworths, which control about 80 per cent of the grocery market in Australia, have been accused of squeezing the profit margins of their suppliers to inflate their own bottom lines.Food and grocery suppliers argue that Coles, which is owned by Wesfarmers, and Woolworths have been demanding more money from suppliers for promotions and shelf fees and demanding deeper discounts, which undermined suppliers’ profits.Food producers have also expressed concern about the growth in “home-brand” lines, which have been undercutting branded products and forcing manufacturers to supply the home-brand products at cut-rate margins.Mr Billson described the new agreement as a “very substantial piece of work”.”It seeks to address the uneven balance of power in the relationship between supermarkets and their supply chains,” he said.

The agreement, to be unveiled today in Canberra by Woolworths chief executive Grant O’Brien, Coles chief executive Ian McLeod and the acting chairman of the Australian Food and Grocery Council, Chris Delaney, will prevent retailers striking deals with suppliers and then altering them without consultation.The code also ensures the protection of confidential information provided to retailers ahead of new product releases. Under the code, these details cannot be shared with the retailers’ own product-development team.Retailers will also have to provide greater transparency over shelf-space allocation for branded products and home-brand groceries.The code also includes a low-cost and fast-track dispute-resolution mechanism.The inclusion of the agreement in the Competition and Consumer Act brings it under the powers of the Australian Competition & Consumer Commission, which could investigate any breaches of the code.Gary Dawson, the chief executive of the Australian Food and Grocery Council, said the “industry-led approach” would improve “contractual certainty in the food and grocery supply chain”.”There has been good engagement from the retailers and genuine willingness to address suppliers’ issues,” he said.”It’s in everyone’s interest – consumers, suppliers and retailers – that suppliers get a fair go in the current market structure. A viable domestic food and grocery sector underpins investment, innovation and consumer choice.”The code addresses many of the sources of conflict by setting clear ‘rules of engagement’ without imposing unnecessary red tape,” Mr Dawson said.”It is pro-competitive by driving greater certainty and transparency in a market dominated by two major retailers.”Mr Billson said the deal would be subject to a regulatory impact statement.He welcomed the fact that the groups were “responding to our invitation to apply themselves purposefully to an industry-led code that responds to concerns in the supermarket supply chain”.He told The Australian the code had “tools and teeth”.Last month, Mr Billson described the state of the food-and-grocery industry as “fragile”.On the supermarkets’ power over suppliers, he said some of the alleged behaviour may not necessarily be breaches of the competition laws.”If unduly harsh bargaining practices are being used, they could, indeed, reduce incentives for suppliers to invest and innovate,” he said. – See more at: