Abuse Of Supermarket Power Will Cost Consumers
12/04/06

The unchecked growth of supermarkets, and the misuse of their power, is seriously damaging the UK food industry, with consumers set to pay the price. That stark message has been sent to the Office of Fair Trading (OFT) by the UK’s farming unions.

In response to the OFT consultation on referring the grocery market to the Competition Commission for investigation, NFU Scotland, NFU, NFU Cymru and the Ulster Farmers Union have urged the OFT to ensure the scope of the inquiry is wide enough to address the central question of how supermarkets treat their suppliers.

Stressing that a climate of fear now exists within the food industry, the UK farm unions have highlighted a catalogue of complaints about supermarkets which suppliers will not talk about for fear of supermarket reprisals or de-listing (see Notes for details).

NFUS President John Kinnaird said:

"As the major supermarkets have grown in power, their ability to abuse their suppliers has also grown.  Ironically, having prided themselves on consumer choice, the trading tactics of the major supermarkets will ultimately result in less choice for shoppers as their suppliers are driven to the wall.

"We have spoken to supermarket suppliers across all food commodities.  They are facing a financial squeeze that is crippling them and jeopardising the future of farm businesses, the first link in the supply chain.

"The Competition Commission was sufficiently concerned about this issue to demand a Supermarket Code of Practice after its investigation six years ago.  But that Code has largely been a waste of time.  Without offering protection to suppliers, virtually no-one has used the Code to complain at their treatment.  Retailer demands for lump sum payments and sudden and imposed changes in payments terms are all now part of day to day life in the food industry.

"This cannot be allowed to continue.  We are not against big business but we will take a stand against abuses of power where they occur.  The first step must be a full investigation of the grocery market with no restrictions or limitations.  For the sake of farmers, the food industry and, ultimately consumers, the growth in supermarket power and its consequences must be addressed."

NOTES:

The following are just some of the issues raised in recent months with UK farm unions by individuals who have direct supply relationships with the major supermarkets:

• Retailer sets its margin for a product in advance and if the margin is not achieved the supplier is forced to make up the difference;
• Supplier is asked to pay the retailer a percentage of turnover annually as a good will gesture;
• Supplier is asked to pay some or all of the costs of product promotion in some cases retrospectively;
• Supplier is asked to pay product listing fees (also known as slotting fees, charged to buy shelf space);
• Supplier is asked (as a good will gesture) to supply staff to assist with shelf stacking at local stores during busy times of year;
• Changes of terms by retailers are imposed, not negotiated, at short notice and sometimes retrospectively;
• Retailer insists that all printed labels are sourced from a list of recognised suppliers. Excellent quality labels can be sourced locally at a fraction of the costs;
• Supplier/processor is audited by a retailer and charged back to the supplier;
• All reported customer complaints incur a fixed price penalty, irrespective of whether the product is returned to store or the complaint is verified;
• Insistence of use of prescribed hauliers and packaging suppliers who are considerably more expensive than other sources;
• Supplier told it has to pay for impromptu promotional material that will be used in a promotion against rival retailer which will reduce the price of the product which the supplier will in turn    have to pay part of;
• Retailer demands right of approval over public statements by suppliers;
• The re-negotiating and shifting of contracts are not always determined by price and/or quality of service.  Contracts can be awarded to a supplier's competitor simply to prevent that supplier  gaining increased market share and, with it, negotiating power.

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