Transparency data

Response: GCA statutory review 2022

Published 12 October 2022

Dean Russell MP
Minister for Enterprise and Markets
Department for Business, Energy & Industrial Strategy

By email only

11 October 2022

Dear Minister

I am writing in response to the consultation published on 19 July 2022 for the statutory review of the Groceries Code Adjudicator (GCA) for 2019 to 2022. I have answered relevant consultation questions below.

Questions for the Groceries Code Adjudicator

For the statutory review period, please explain how you have met your statutory duties set out in the Groceries Code Adjudicator Act 2013? Please comment in particular on:

a) how much you have exercised your powers;

Section 14 of Groceries Code Adjudicator Act 2013 (the Act) provides that I must prepare and publish an annual report describing what I have done during each annual reporting period. During this review period I have published two annual reports and my predecessor published one such report. I enclose extracts of these reports covering the statutory reporting requirements at Annex A to this letter. These show that during the review period the GCA has not launched any investigations and has not used any new formal enforcement measures.

It is the GCA’s judicious use of its power to give advice to designated retailers (Retailers) and suppliers, to publish guidance, and its collaborative approach to regulation that has ensured effective enforcement of the Groceries Supply Code of Practice (the Code) without recourse to investigations, which are resource intensive and not the quickest way to change Retailer behaviour.

Since my appointment as GCA I have used the powers provided by sections 11 and 12 of the Act to ensure Retailers treat suppliers fairly, and that Retailers focus on the issues of greatest concern to suppliers. For example, in September 2021 I published a best practice statement on forensic auditing, agreed by the then-designated retailers, having heard from suppliers about issues such as Retailers’ use of cherry-picked or confusing data, and unclear relationships with Retailers’ third-party contractors. More recently I published 7 Golden Rules, setting out how Retailers aim to ensure fair consideration of supplier requests for cost price increases in light of inflation. These best practice publications reduce the likelihood that Retailers transfer excessive risk or unexpected costs onto their suppliers.

During the review period I drove adherence to this agreed best practice and broader compliance with the Code through collaborative engagement with Retailers. Through my regular meetings with Retailer Code Compliance Officers and senior managers, including chairs of their Audit Committees and their Chief Executive Officers, I ensured that Retailers (including Amazon.com, Inc. from 1 March 2022) were aware of issues and were speedily taking remedial action. During the review period my collaborative approach was effective and therefore no investigation was necessary, but I prepared sufficiently that I would have been able to investigate and enforce my findings had that been necessary. I have provided advice to suppliers as described in my separate answer below.

Section 2 of the Act provides that I must either arbitrate or appoint an arbitrator if a supplier refers a dispute to my office for arbitration. Between my appointment as the GCA and the end of the review period I acted as arbitrator in three disputes between a Retailer and a supplier. I believe those Retailers party to arbitrations have had the opportunity to use the arbitral process to improve wider compliance with the Code within their businesses. While ensuring confidentiality in accordance with section 18 of the Act, I have used the improved understanding of relationships between suppliers and Retailers afforded by the arbitrations to inform my wider regulatory activity across all Retailers without additional cost.

b) how effective you have been in enforcing the Groceries Code.

My annual survey of suppliers provides the most robust available evidence of supplier experience of Retailer compliance with the Code and of specific Code issues. I have improved the reliability of this evidence by increasing the annual number of respondents to the survey from around 1,500 to around 2,500 since my appointment. The survey findings show that the GCA’s approach to monitoring and ensuring compliance and enforcing the Code was successful in the review period.

There has been steady improvement in the scores for overall compliance with the Code since the first survey in 2013. This improvement has continued since the last statutory review in 2019. In the first survey the scores ranged from 58% to 90%. In 2019, the scores had improved to a range of 81% to 97%. In the 2022 survey the lowest score was 84% and the highest score was 98%.

My guidance, paired with effective stakeholder engagement, had a positive impact on the relationships between suppliers and Retailers. Despite extremely difficult trading conditions over the past two years, the GCA survey findings between 2019 and 2022 show:

• Suppliers incurring significant costs because of inaccurate forecasting by Retailers fell from 24% to 18%.
• Suppliers experiencing retrospective changes to supply agreements fell from 12% to 9%.
• Suppliers experiencing de-listing without reasonable notice fell from 22% to 16%.
• Inadequate processes and procedures in place to enable invoice discrepancies to be resolved promptly fell from 23% to 18%.

We would also welcome any comments you may have on the Order-making powers contained in the Act and whether you would find it helpful for the Secretary of State to:

a) amend or replace the Groceries Code Adjudicator (Permitted Maximum Financial Penalty) Order 2015;

I do not believe it is necessary for the Secretary of State to amend or replace the Groceries Code Adjudicator (Permitted Maximum Financial Penalty) Order 2015. Although I did not impose any financial penalty in the review period, the possibility of a penalty is an important element of the GCA’s collaborative approach.

b) make an order setting out the information which you may consider when deciding whether to investigate (see section 15(11) of the Act).

I do not believe it is necessary for the Secretary of State to make an Order limiting the information which the GCA may consider when deciding whether to investigate. I received useful information from a wide range of sources during the reporting period, allowing me to take appropriate action to ensure fair and lawful treatment of suppliers while maintaining confidentiality. Limitations on my ability to consider certain evidence might have impeded that GCA activity.

How effective has the GCA been since 2019 in:

a) improving retailer and supplier awareness of the Code

I have worked to improve Retailer and supplier awareness of the Code and of the GCA, and have restructured my team to enhance GCA communications and engagement with relevant stakeholders. As well as using my annual report, newsletters and digital channels, in the final year of the review period I presented to, or met, over 100 suppliers to discuss the Code and the GCA. By delivering my annual conference for 2021 online I was able to reach over 500 registrants to explain my priorities. Throughout the review period I used online engagement, both when in-person meetings were impossible because of COVID-19 and when it enabled me to reach a larger and more geographically spread audience.

This activity has ensured that, despite the challenges presented by COVID-19, understanding of the Code and the GCA among direct suppliers declined only slightly through the review period:

• 77% had a good or fair understanding of the Code in 2019, down to 74% in 2022.
• Awareness of the GCA was 84% in 2019 and 83% in 2022.
• 73% had a good or fair understanding of the GCA’s role in 2019, down to 69% in 2022.

I continued my regular engagement with Retailers online while in-person meetings were impossible because of COVID-19. I have since recommenced visits to Retailers by me and my team, including meeting a range of Retailer employees to improve understanding of the Code, as well as to improve my and my team’s understanding of Retailers’ businesses.

b) improving supplier confidence in raising issues with retailers and with the GCA?

In my engagement with suppliers detailed above I have prioritised clear communication of my statutory requirement to maintain supplier confidentiality. As well as explaining the scope of the Code and its relation to suppliers’ issues, when talking to suppliers and in responding to enquiries I have also started to describe more clearly how the GCA handles and uses supplier information to deliver results to address any supplier concerns about GCA effectiveness.

In January 2021 I also published a CCO commitment to confidentiality with the aim of further reducing supplier concerns about retaliation by Retailers. To provide total reassurance to suppliers concerned about retaliation, in February 2021 I launched a platform, ‘Tell the GCA’, that allows suppliers from anywhere in the world to report issues to me anonymously.

My annual survey shows direct suppliers’ confidence improving:

• 10% said in 2019 that they would not raise an issue with the GCA, down to 6% in 2022.
• 43% said in 2019 that they were not sure that they would raise an issue, down to 39% in 2022.

I will continue to use the reasons given by these suppliers for their lack of confidence to inform my work:

• Concerned about consequences if the Retailer found out: 53% in 2019, down to 42% in 2022.
• Could address the issue themselves: 37% in 2019, down to 34% in 2022.
• Did not think the GCA could do anything about the issue: 15% in 2019, up to 20% in 2022.
• Did not know if the issue was covered by the Code: 15% in 2019, down to 13% in 2022.

Questions for all relevant parties

Do you think there are advantages of transferring the GCA functions to the Competition and Markets Authority (“CMA”) to increase efficiency, effectiveness and economy in exercise of public functions?

Do you think there are disadvantages of transferring the GCA functions to the CMA and do you have thoughts on how these might be addressed?

Do you think there would be advantages of transferring to another public body? If so, could you explain which one and why and whether there are any disadvantages?

The results of my annual survey above show the effectiveness of the GCA in exercise of its functions during the review period. Consideration of the transfer of GCA functions to the CMA or another public body could include:

• The profile of any Adjudicator within a body other than the GCA, and the impact on supplier awareness and confidence as well as on Retailer compliance with the Code.
• The quasi-judicial role exercised by the Adjudicator as an arbitrator and the link with the GCA’s regulatory functions.

The reduction across the review period in the average per-Retailer levy despite inflation shows the GCA improving efficiency and economy in the exercise of its functions. Consideration of the transfer of GCA functions to the CMA or another public body could include:

• Any levy regime which, as at present, requires the Retailers to fund the work of the GCA.
• The size of any efficiencies in the delivery of corporate matters such as securing office accommodation, procurement and the preparation of accounts and auditing, once arrangements are made to enable the charging of any levy.
• The ability to attract and retain staff to support the work of the Adjudicator.

Do you think it is still necessary to have an Adjudicator to enforce the Code?

Responses to the GCA’s annual survey show the proportion of suppliers facing Code issues falling from 79% in 2014, shortly after the GCA’s establishment, to 29% in 2021. As inflation has created pressure in the grocery sector, this proportion rose to 35% in 2022, despite the work of the GCA. This third of suppliers, including many micro and small businesses (30% of direct supplier respondents), continue to face supply chain practices determined by the Competition Commission to potentially transfer excessive risks or unexpected costs from grocery retailers to suppliers.

Yours sincerely,

Mark White

Groceries Code Adjudicator

Annex A: Statutory reporting requirements

Groceries Code Adjudicator Annual Report and Accounts (2019/2020)

Disputes referred to arbitration under the Groceries (Supply Chain Practices) Market Investigation Order 2009

The GCA accepted appointment as arbitrator in one dispute in the reporting period. There are no ongoing arbitrations at the end of the reporting period.

Investigations carried out by the GCA

There were no new investigations launched during the reporting period.

Cases in which the GCA has used enforcement measures

No new enforcement measures were used.There was ongoing monitoring of Co-op as a result of the recommendations made in the report of the investigation published on 25 March 2019. Monitoring was completed in this reporting year.

Recommendations that the GCA has made to the Competition and Markets Authority (formerly Office of Fair Trading) for changes to the Code

The GCA has made no recommendation to the CMA for any change to the Code.

Groceries Code Adjudicator Annual Report and Accounts (2020/2021)

Disputes referred to arbitration under the Groceries (Supply Chain Practices) Market Investigation Order 2009

There is one ongoing arbitration at the end of the reporting period.

Investigations carried out by the GCA

No new investigations were launched during the reporting period.

Cases in which the GCA has used enforcement measures

No new enforcement measures were used during the reporting period.

Recommendations that the GCA has made to the Competition and Markets Authority (formerly Office of Fair Trading) for changes to the Code

No recommendations for changes to the Code were made to the CMA during the reporting period.

Groceries Code Adjudicator Annual Report and Accounts (2021/2022)

Disputes referred to arbitration under the Groceries (Supply Chain Practices) Market Investigation Order 2009

There was one ongoing arbitration at the end of the prior year reporting period. This was concluded within the 2021/22 reporting period. The GCA accepted appointment as arbitrator in two further arbitrations. One was concluded within the 2021/22 reporting period. One was ongoing at the end of the 2021/22 reporting period.

Investigations carried out by the GCA

No new investigations were launched during the reporting period.

Cases in which the GCA has used enforcement measures

No new enforcement measures were used during the reporting period.

Recommendations that the GCA has made to the Competition and Markets Authority (formerly Office of Fair Trading) for changes to the Code

No recommendations for changes to the Code were made to the CMA during the reporting period.