1000’s of supermarket suppliers financially exposed due to serious lack of written supply agreements.
Thousands of groceries suppliers continue to be financially exposed by not having written supply agreements in place with their key supermarket customers. This is despite supply agreements being a key aspect of the Groceries Supply Code of Practice (the code), and one of the Grocery Code Adjudicator’s (GCA) key priorities.
The code clearly states that written supply agreements are mandatory, pointing out that a retailer cannot trade with a supplier unless the supplier has a written copy of the supply agreement and of all terms and conditions governing the trading arrangements between the parties.
The rule is designed to ensure supermarkets do not exploit uncertainty in supply arrangements to squeeze their suppliers. We’re already working with suppliers who have lost millions of pounds because there was no formal supply agreement in place.
And it’s a problem that is not going away. Last year’s annual survey of suppliers, commissioned by the Groceries Code Adjudicator, revealed on average only half of respondents said they had a supply agreement of any sort. At the current rate of improvement retailers won’t be compliant with the code until 2024!
When it comes to compliance, Aldi and Lidl are leading the way on supply agreements, with nearly seven in ten of their suppliers stating they have written agreements.
Ged Futter, one of my co-directors of GSCOP Ltd, and a former senior supermarket buyer says in his experience, having spent the past two years training hundreds of suppliers on the code, supply agreements are still few and far between. And where they are in place, they are often not fit for purpose. They often exclude key information making them ineffective should a dispute occur because supply arrangements have been altered.
A good supply agreement needn’t be complicated, nor a legal minefield. It should simply cover key terms such as payment, delivery, product specifications, warranties, promotions, price metrics and any other agreed investment.
While the onus is obviously on retailers to observe this mandatory requirement, suppliers ought to be proactive and take the lead where necessary. Until that happens billions of pounds of business will continue to be done on a handshake, which can prove problematic and expensive for suppliers should any disagreements occur further down the line.
We established GSCOP Ltd to provide GSCOP training to the groceries sector with the intention of helping level the playing field. In addition to training we offer commercial, legal and reputational consultancy to groceries suppliers.
We’re looking forward to meeting with the GCA at the end of the month to outline our concerns. In the meantime we are calling on suppliers and retailers to move more quickly towards 100 per cent compliance on this basic principle of trading with one another.
Alistair Maiden, also a fellow founding GSCOP director, is one of the UK’s most experienced groceries code lawyers.
He expects a supply agreement to clarify which party’s standard terms and conditions govern the supply arrangements.
He recognises that retailers and suppliers often cannot agree which standard terms apply but says retailers are obliged to negotiate to resolve such an impasse and settle the terms on which the parties have agreed to trade. If the parties cannot agree whose terms apply, a sensible position is to agree in writing that English Law applies and leave it at that. Anything short is a clear breach of GSCOP.
Relying on the ‘battle of the forms’ certainly isn’t what the architects of GSCOP intended.
The results from last year’s GSCOP Adjudicator Annual Survey are shown below. They reveal on average only 52 per cent of suppliers who completed the survey said they had a supply agreement in place with the ten retailers covered by the code.
Since then we have spoken to hundreds of individuals working for suppliers across the sector. We’ve found in the main, most do not have any agreements in place. Where they are in existence, they often exclude key information making them ineffective.
If you are a groceries supplier to a major supermarket and need support creating supply agreements don’t hesitate to get in touch with us.
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