Why I'm for a code of conduct

My humble opinion, expressed last year, was that the Canadian grocery industry needs a code of conduct modelled after codes of conduct in the United Kingdom and Australia. Those codes limit the control big retailers have over suppliers.

Information I have received since then convinces me more than ever that a code of conduct is a necessity for Canada.

Ottawa should legislate a code of conduct to rein in abuses by the largest grocery distributors. Sobeys, Loblaw and Metro would disagree, of course. They’d argue that the natural forces of the marketplace amply serve manufacturers and consumers. But I’ve recently learned from sources about two actions by retailers against suppliers that a code of conduct would have prevented.

Case No. 1 saw a supplier advise retailers of a change in the UPC code of its product. One large retailer continued to order the product under the old UPC, then fined the supplier for non-delivery. In case No. 2, a large retailer ordered a quick replenishment of a product that the supplier then delivered to stores directly.

The retailer didn’t recognize that the delivery had taken place and, again, fined the supplier for non-delivery.

Clearly both situations were the retailers’ fault. Resolving them probably cost the suppliers quite a bit. If Canada had a retail code of conduct modelled after the British code, the resolution would have been clear; the British code prohibits retailers from charging suppliers for their own errors.

Another important area a code would address is the fees and discounts that suppliers pay to retailers. Those recently caught the attention of the Financial Reporting Council in the U.K. The FRC, which sets the standard for corporate accounting, noted that “complex supplier arrangements such as fees and discounts” have a “significant impact” on a retailer’s reported results, and therefore affects “investors’ views of its performance.” The FRC has asked retailers to make public more of the information about fees and discounts collected from suppliers.

The FRC says it expects to see “high-quality” disclosure about fees and discounts in forthcoming annual interim and annual reports. I can’t see Canada’s Big 3 grocers doing that unless they are forced to by legislation. But interestingly, just last month a large Canadian retailer asked members of United Grocers Inc., the buying group, to provide it with details of the rebates UGI members get. (UGI asked its members not to comply with the big retailer’s request.)

A code of conduct would make it clear what demands retailers can and can’t make of suppliers. For instance, Coles, one of Australia’s two largest grocers, asked smaller suppliers to pay an ongoing rebate. (Sound familiar?) Due to Australia’s code of conduct, Coles was forced to re- examine its policy.

In Britain, Tesco was caught charging suppliers for better shelf position. The Groceries Code Adjudicator, the government’s watchdog of relationships between the big supermarkets and suppliers, took Tesco to task. The Adjudicator said charging suppliers for shelf position is “contrary to the spirit” of the code of conduct “because the inference a supplier would draw from such a request is that, unless they agreed to it, they would suffer some detriment.” Tesco said it will now train its buyers on the rules.

It is obvious to me that a properly enforced retail code of conduct is an effective mechanism to police big retail. If Canada had such a code, it would have prevented Sobeys from ordering a retroactive discount from suppliers. And it may very well prevent Loblaw from making almost annual demands for new discounts because a code would say that contracts have to be agreed upon by suppliers and retailers in advance.

Retailer errors in accounting or otherwise also could not be charged to suppliers. That might well put an end to the infamous “unexplained deductions” with which all Canadian suppliers are familiar.

Yup, we sure could use a retail code of conduct.