Samantha Blake of the Australian Food and Grocery Council discusses the obligations detailed within the Food & Grocery Code of Conduct and how they play out in the commercial setting.
In early 2013 the Australian Food & Grocery Council in response to member requests led the negotiations towards the Food & Grocery Code of Conduct (FGCC).
The FGCC passed approval by parliament in 2015. Throughout 2016 signatory retailers and their vendors worked towards implementation. The FGCC is now a new feature of the grocery supply landscape trading relationship between suppliers and retailers.
“It is important to highlight that this is a voluntary code for retailers, Coles Woolworths and Aldi have been involved in its drafting and are signatories to it. Even though it is a voluntary code (rather than mandated), it is still legally binding on all signatories”. Gary Dawson AFGC.
Currently AboutLife, Aldi, Coles and Woolworths are signatories to the FGCC, meaning that all their vendors are covered by the provisions within the FGCC. Metcash have not signed the code but have agreed to be bound by the components relevant to wholesalers for a period of 18 months.
The intent of the code is to provide clarity,visibility and structure to the commercial elements of the trading relationship between suppliers and grocery retailers. Trading agreements struck with retailers under the mantel of the FGCC will ‘clearly and upfront’ identify all of the financial exposure for both parties allowing both retailers and suppliers to fully evaluate the commercial benefits of the trading agreement. The FGCC is not intended to reduce the competitive nature of the Australian grocery market.
There are clearly many implications of the new code for both retailers and suppliers. For example:
Forensic accounting claims
Many of the manufacturers we have spoken with have very successfully pushed back on the retailers endeavouring to deduct claims from many years ago. As a reminder, the precedent set now is two financial years including the current. So, any claims for activity dated prior to 1st July 2015 should be looked at very carefully. The good news is that the bullish behaviour by retailers of pushing suppliers into unfair investment or trade arrangements is a thing of the past.
Punitive or unreasonable deletions
We have seen many brand owners successfully defend a deletion, or in some cases, reverse a deletion decision based on the FGCC. Remember a product can only be deleted either through a range review or for genuine commercial reasons. If you would like more information on this, visit the NextGen or the AFGC’s website that explores this in more detail.
Incremental investment demands
Whilst it was disappointing to see the ACCC unconscionable conduct case against Woolworths fall short, it did put the spotlight firmly on these kinds of behaviours. All of the major retailers have reviewed these practices and the FGCC has certainly provided suppliers with a greater ability to say ‘no’.
Waste and shrink agreements
Dozens of suppliers have very successfully challenged these agreements on the back of the FGCC. The majority aren’t necessarily looking to repatriate this money – rather re-invest for growth.
Early settlement discount
This is one that is still rumbling – if you are paying for a service that you are not getting then you should be able to challenge that! The FGCC says you need to be paid in a ‘reasonable time’ – if you don’t want to be paid early then don’t pay for it!
Nothing in writing
Quite a few FMCG suppliers have recounted conversations where the retailers have made ‘requests’ of the supplier. There is nothing specifically in the FGCC that requires a retailer to put everything in writing. If the subject being agreed is covered by the FGCC then it must be in writing (e.g. delists or GSA’s). However, it would not be unreasonable to insist on any request being supported with a quick email outlining the details. If a retailer refuses to put it in writing, then it would certainly challenge the principle of ‘operating in good faith’ that the FGCC requires of a retailer.
These are just a few of the obligations detailed within the FGCC and how they play out in the commercial setting. To provide the FMCG industry with the relevant knowledge and skills the AFGC has partnered with NextGen to provide a certified training program and ‘code accreditation’. Details are available at www.afgc.org.au.
Whats next for the FGCC?
The FGCC will be reviewed in 2018 by the government, with submissions made by the AFGC. The outcome of this review could be threefold; remain with the status quo, become mandated (compulsory participation from retailers) or strengthen key obligations based on supplier feedback (the least likely outcome).