Pressure is mounting on the UK government to extend the role of Groceries Code Adjudicator (GCA) as a new review into its activities is announced and as Christine Tacon prepares to step down from the role next year.

At a press briefing in London on Monday (24 June 2019) before the GCA’s Annual Conference at which the results of the 2019 survey were presented, Tacon was clearly pleased with the progress she had made in improving retailer behaviour since being appointed to the post in January 2013. Her remit when she began was to police the Groceries Supply Code of Practice (GSCoP), which governs the relationship between the then top 10 big retailers (now 12, see Table 1) – each with a turnover of more than £1bn annually – and their suppliers.

As this year’s survey results indicated, while there is still work to be done, considerable progress has been made, with – for the second year running – only four out of 10 suppliers reporting having experienced an issue at any point in the year. Tacon attributed this to the “collaborative” approach she had taken with the retailers, rather than wielding a big stick and imposing fines at her disposal of up to 1% of their annual revenue.

On 1 November 2018, the Competition and Markets Authority (CMA) added two more retailers – Ocado and B&M to the list covered by the Code. B&M originally challenged the decision to add it, but withdrew the challenge on 13 May 2019. However, Tacon made clear that she would like to see a “level playing field” with more retailers falling under the GCA’s remit. That said, however, she is cautious about the GCA’s brief being extended too far.

Tacon also used the Annual Conference to announce a new approach to working with the retailers she regulates. Effectively, she wants to encourage major cultural change within these organisations to ensure that they don’t fall foul of GSCoP in the first place by using the correct business procedures and IT systems. The idea is that this will drive effective top-to-bottom compliance risk management by the retailers in a more self-regulatory approach.

On 20 June 2019, the government announced it would be launching its second review of the GCA (the first one took place in 2016), which will run for 12 weeks and look into the office’s performance including:

• How the GCA’s powers have been exercised;
• How effective the GCA has been in enforcing the Code;
• Whether to amend or replace the fining powers of the GCA; and
• Whether to make an Order clarifying the information that the GCA may consider when deciding whether to launch an investigation (so far, Tacon has conducted two: one into Tesco and second into the Co-op)

Minister for small busineses Kelly Tolhurst said: “The GCA plays an important role ensuring the UK’s biggest supermarkets treat their direct suppliers lawfully and fairly.

“The security of our suppliers is crucial to the health of our economy and I am committed to ensuring there is a strong framework in place to protect them. I look forward to seeing the results of this review and very much welcome views on how effective it has been in the last three years.

Extend the GCA remit
From the results of the 2019 GCA survey and comments made by delegates to the conference, such as the National Pig Association’s chief executive Zoe Davies, a number of suppliers and the organisations that represent them would like to see the GCA’s role extended.

An investigation by The Grocer magazine in May 2019 also revealed that, while the big retailers had significantly improved their payment practices with suppliers since the GSCoP and GCA came into being, many big food and drink manufacturers that don’t fall within the remit of the Code are treating their suppliers – such as farmers and smaller manufacturers that supply them – pretty badly as far as late payments are concerned.

As well as those, like Davies, who would like to see the GCA’s remit extended to larger processors and manufacturers as well as retailers, the survey revealed that a number of suppliers would like to see the likes of Amazon, Boots, Superdrug, Home & Bargains, Booths and foodservice operators Brakes and Bidfoods covered as well.

It also emerged that a number of retailers in Northern Ireland are not captured by the £1bn turnover figure in the Code. “There are areas such as Northern Ireland where you have got two really big players, both of whom are way under £1bn turnover, but people in Northern Ireland say you should be regulating them as well,” Tacon told the press briefing.

However, any decision to widen the GCA’s remit – if it happens at all – will be for CMA to decide. It will also depend on the outcome of the second review of the GCA’s activities just announced by the Department for Business, Energy & Industrial Strategy (BEIS). “It is also an opportunity to ask: have we got it right?” Tacon remarked.

However, although Tacon is open to some of the anomalies of retailers not currently covered by the Code being rectified, she didn’t believe the GCA’s remit should be extended too widely. She believes extending the GCA’s scope to include thousands of UK food and drink manufacturers in the UK would stretch the current resources of her office too thinly.

“People want me to do more in many different areas and the obvious way to get me to do more is to make sure I have got all the retailers that are competing with each other – so a level playing field is the thing I keep talking about,” she said. “What I have done has worked because I have only had a small number of people I am regulating and I have been able to work intensively with them until issues are resolved.

“People want me to do more in
many different areas
and the obvious way to get me to do more
is to make sure I have got all the retailers
that are competing with each other –
so a level playing field is the thing
I keep talking about”

“Any extension has got to think about the collaborative approach that has clearly worked here but wouldn’t work if the person was looking after 8,000 suppliers. Who is going to pay for it? Because you can’t ask the retailers to pay for something that is further up the supply chain.”

Tacon also explained that the Role of the GCA was not to be a “complaints handler”, but to resolve generic problems in the sector. For specific complaints suppliers should first go to retailer code compliance officers and only if this does not resolve an issue, will the GCA get involved as an arbitrator, she said.

Agriculture Bill and EC Directive
Furthermore, Tacon suggested that other political developments could influence trading practices and problems such as late payments. In particular, the UK’s Agriculture Bill will be looking at trading practices extending back to the farm gate, while the Europe Commission Directive on Unfair Trading Practices in the agricultural and food supply chain could still have an impact on the UK if it wants to continue trading with the EU after Brexit.

Tacon was also pretty angry at the grilling she had received at the hands on the Commons BEIS Select Committee on 14 May, whose members didn’t seem to understand that her activities are restricted to those within the scope of the GSCoP. While she had tried to explain that she couldn’t start meddling in matters outside her remit and covering aspects such as contracts and payment terms agreed between retailers and suppliers unless these were unilaterally changed in breach of the Code, this didn’t seem to be accepted by the MPs on the Committee.

Commenting on whether the role of the GCA should be extended, either up the supply chain or to cover things the Code is not currently designed to address, Tacon said: “I am clear in my own mind that it would mean significant change in the way the work of the GCA is done. The levy funding model would have to be altered so a few large retailers were not paying for the GCA to regulate arrangements over which they had no direct control.

“The collaborative approach I have established would not have been possible with a much larger cohort of regulated businesses, or if my job were to champion individual supplier issues or causes. And thought would have to be given to the fit between any new price-based measures and the competition position underpinning everything the GCA is currently established to do.”

Self-regulation
In her final year as the GCA Tacon said she is committed to working with each of the 12 large retailers to ensure all their practices, systems and behaviours are designed and structured to meet their obligations under the GSCoP.

“I am introducing a common factors approach to guide their compliance risk management activity,” Tacon told the Annual Conference. “However they are set up I want to see the retailers build for themselves a whole-organisation approach to Code compliance. This puts their compliance management thinking into their overall governance structures, their legal and audit functions as well as their internal systems and processes, into their training and their communication with suppliers.

“This is the best way to make sure that breaches of the Code don’t happen and if they do, that they are quickly picked up and put right. It means retailers doing the right thing not only because that is what is required of them, but because it makes good business sense.”

GCA survey results for 2019
This year’s GCA survey covered a record number of around 1,500 responses, for which Tacon was particular pleased. Last year’s top concern for suppliers – issues around delays in payment – fell from 19% to 13% in a period when the retailers’ response to the issue was under formal monitoring by the GCA. “I’m really, really proud of that,” Tacon said at the press briefing.

Forecasting is now the issue most reported by suppliers – and that, too, has continued to decline. “What used to be the second biggest issue, forecasting, with 17% saying it is an issue; this year even that has gone down to 15% and I would imagine if I did a survey in 10 years’ time, forecasting would still be the top issue because that has such an impact, but you are never going to get it right.”

In addition, the Co-operative Group topped the table as the biggest improver after significant scrutiny from the GCA following a year-long investigation which found that the retailer had breached the Code.

“Co-op should be really pleased that the steps it has been taking to improve things are already being noticed by suppliers,” said Tacon. “More significantly, I believe my investigation into Co-operative Group Ltd can be a game changer for the sector.

“The root causes I identified as a result of that investigation showed the extent to which the retailer had failed to take charge of its own Code compliance [regarding not providing reasonable notice for delisting or to vary agreements]. Opportunities to manage and minimise its compliance risk had been missed, and themes emerged which were not only common to Co-op’s breaches of the two paragraphs of the Code I investigated, but also familiar to careful readers of my previous two case studies [Asda and Morrisons].

“I now intend to build the lessons I learnt into my approach with all regulated retailers. I want to leave this role having achieved all I set out to do – and more.”

Tacon added that she would be examining how the Code should apply to the various buying alliances, joint ventures and merged entities run by the regulated retailers, which she said was important because arrangements of these kinds were increasing in the groceries sector.

She also announced that she had secured agreement from Waitrose and Ocado to the voluntary commitment achieved with eight of the original 10 retailers in 2014 to limit forensic audits to the current year plus two. Forensic auditing had been the top issue in 2014 when 45% of suppliers reported a concern with the issue – in the 2019 survey that had fallen to 7%.

What Tacon has achieved in her role of GCA has helped improve one of the worst business sectors –namely the grocery sector for the abuse of power between the big supermarkets and their direct suppliers. Whether this approach would work if extended to cover other companies in the food and drink supply chain is open to question, Tacon believes. She suggested a better solution might be to adopt a regulatory approach that covers business practices across all sectors.

“Groceries probably used to be the worst sector; it’s now probably the best. Are we going to pick it off sector by sector? Or do we actually want to have an approach to all trade; all business,” said Tacon. “My view is think about the big picture.”

With all the problems facing the UK government at the moment and those likely to emerge following Brexit, the question must be asked: is there the appetite to tackle anything as radical?

Table 1 Retailers currently covered by GSCoP

Aldi

Asda

B&M

Co-op

Iceland

Lidl

Marks & Spencer

Morrisons

Ocado

Sainsbury

Tesco

Waitrose.