"Supermarket bullies" face crackdown

Here at The Packer we are gearing up for The Produce Marketing Association's expo in Houston, which will be occasioned by news of dozens of new products seeking shelf space in supermarkets.

It won't be an easy thing for any produce marketer to plug in their new product at a major chain, no matter how winning the concept. What kind of allowances, discounts, rebates, marketing money or slotting fees will be part and parcel of the effort? Here is a recent paper that justifies the use of slotting fees.

A story from the UK reminds us of some of the realities of the supplier-buyer relationship, and how the consolidation of retail power continues to raise concerns among regulators. "Retrospective" payments - that's a new term for me - but it is one the key issues involved with what is being described in this story from the UK about the Competition Commission planned crackdown on "bully-boy" tactics.
From the story:
The Competition Commission is expected to raise the prospect of a ban on so-called retrospective payments to suppliers – a system by which the latter end up giving the retailers discounts for selling their items – when it unveils its preliminary findings from a probe into the sector.
In addition, the commission is expected to raise serious concerns about lump-sum payments demanded by supermarkets for the placement of new products or access to their shelves for existing products.
The watchdog is also likely to call on supermarkets to give suppliers greater certainty by offering them more fixed contracts so they know how much they will be paid and when.
According to a survey released earlier this year by Grant Thornton, the accountant, more than two-thirds of suppliers said they had no written contract, with 23% claiming supermarkets were unwilling to agree written terms. Almost half had no preagreed order-cancellation notice period in place.
City sources familiar with the Competition Commission inquiry also said it would look to strengthen the voluntary code of conduct between supermarkets and their suppliers which was launched after an investigation in 2000 into the sector.
Patricia Hewitt, trade secretary at the time, said: “The success of the code depends on supermarkets and suppliers being reasonable in their dealings with one another, and observing the spirit of the code.
“The code can set a standard for the industry as a whole, enabling it to put its commercial relations on a better footing.”
Well-placed sources said the commission may tighten the wording of the code to better define what is “reasonable” and “unreasonable” behaviour.
The watchdog already flagged its concerns about supermarket-supplier relationships in a paper reviewing the code of practice.
It said: “Our greatest concern . . . is the element of retrospectivity or uncertainty for suppliers regarding payment terms that many of these practices imply.”
In August, speculation intensified that the watchdog had found a “smoking gun” after unearthing e-mails between supermarkets and their suppliers in which the retailers were said to have threatened blacklisting unless they were given discounts.
Tesco and Asda have handed over millions of e-mails sent in the run-up to a summer £520m price war. Asda and Tesco have both denied any wrongdoing.
The commission, led by Peter Freeman, will not make firm recommendations in its preliminary findings. But it will raise key areas of concern and outline possible remedies. The supermarkets will then be given another opportunity to respond.
Most of the big supermarket chains are braced for the commission to take some action in relation to their dealings with suppliers. Privately, several senior supermarket executives say they expect the commission to tighten the code of practice.

TK: Remember the controversy over slotting fees in the U.S.? That issue has seemed to have died down now, but there was plenty of ink about it from about 1999 to 2003.

The Packer library has numerous stories about the issue of slotting fees. A limited U.S. FTC staff study on slotting fees in 2003 is found here, and here is an opinion piece from Supermarket Business in 1999 called Payola . The FTC study says somewhere between 50% and 90% of all grocery products have slotting fees associated with them. As it relates to produce, does this issue need more illumination from regulators? Has the prevalence of slotting fees and other charges increased or decreased since 2003? Given the proliferation of new products and value added items, I would think this issue has not gone away, even if it has become less publicized.