The public still thinks retailers are dominated by those whose large market shares places them in an unfair position against suppliers.
That is a perception that will have only been heightened by the Debenhams “Santa tax” story this week, after the retailer requested that its suppliers take a 1-2% discount on its bills ahead of Christmas in return for receiving the payments earlier than scheduled.
In the age of the internet, the idea of retailers holding the upper hand when it comes to negotiating may not be as true as it once was, but the public’s perception of this imbalance is important.
Grocery blazes the trail
Looking at the principles of the Grocery Suppliers Code of Practice (GSCOP) could help solve this. In the grocery sector, the difference in bargaining power between the top 10 supermarkets and their suppliers is notorious.
However, that imbalance has now been redressed by GSCOP, which specifically addresses the litany of bad buyer behaviour which gave supermarkets a poor reputation in the first place.
For example, under GSCOP, supermarkets can’t threaten to delist products if suppliers do not agree to profit calls, they can’t make unilateral deductions on supplier invoices and they can’t force suppliers to contribute to the cost of product sales or promotions in breach of previously agreed supply agreements.
Open and fair negotiations can and do still take place between the supermarkets and their suppliers, however. GSCOP is intended only to provide for a more balanced supplier relationship and not to handcuff the supermarkets’ right to be tough negotiators.
After all, supermarkets have a right to make money too.
Although supermarkets are bound to comply with the regulations, GSCOP’s take up by suppliers has been slow, but it is now gaining traction particularly in light of the well-publicised investigation of Tesco by the Groceries Code adjudicator, Christine Tacon.
As a consequence, supermarket-supplier relationships are improving and, from a consumer’s perspective, this is no bad thing.
“Consumers now not only want a good product but they want to feel good about what they are buying. Crucially, they do not want to feel guilty”
Rob Coleridge, Thomas Eggar, LLP
In times past, consumers were arguably less interested in supply chain relationships, but in today’s age of the millennials, they are.
Consumers now not only want a good product but they want to feel good about what they are buying. Crucially, they do not want to feel guilty about it.
Demonstrating fair treatment of suppliers is therefore a key marketing component and, to that effect, GSCOP is helpful. Consumers may not be aware of GSCOP’s specific provisions, but they certainly know what is and isn’t fair, and GSCOP provides a useful crib list in that respect.
Lastly, the implementation of GSCOP has shown that having an overly aggressive buying strategy is not a necessary tactic for a retailer to be successful.
It has always been the case that strong supply chain relationships lead to good business and the implementation of GSCOP emphasises this.
“It has always been the case that strong supply chain relationships lead to good business”
Rob Coleridge, Thomas Eggar, LLP
YouGov has reported that the supermarkets with the best GSCOP compliance rate are Aldi and Waitrose – two very contrasting retailers, but two that are both growing where most of their competitors are losing market share.
This is unlikely to be a complete coincidence.
There are therefore lessons to be taken from the grocery sector and retailers operating in other markets would do well to consider whether their supplier relationships are as fair those required of the supermarkets.
The public now demands this and GSCOP can help.
- Rob Coleridge is an associate at law firm Thomas Eggar LLP