Co-op has been ordered to make major changes to its governance, IT systems and processes after it was found to have breached the grocery watchdog’s code.
Groceries Code Adjudicator Christine Tacon found that the UK’s sixth-largest supermarket chain had breached the Groceries Supply Code of Practice byfailing to provide reasonable notice to suppliers of decisions to de-list products.
The retailer also varied supply agreements unilaterally and without reasonable notice in the way it applied two specific charges, the GCA found, but she decided not to use her power to fine the retailer.
Thewatchdoglaunched the investigation on 8 March 2018 after an 18-month period of significant engagement with Co-op during which the retailer accepted it was unable to get to the bottom of the issues.
Tacon interviewed a broad cross-section of Co-op suppliers as well as employees of the retailer and examined documents provided by the Co-op and suppliers.
She found that the retailer de-listed suppliers with no notice or short, fixed notice periods that were not reasonable in the circumstances.
Applying standard notice periods is contrary to the code which specifies that notice of de-listing should be considered on a case-by-case basis.
The retailer’s conduct in introducing depot quality control charges and benchmarking charges also breached the code.
The adjudicator found that this caused particular difficulties for suppliers with fixed-cost contracts as they were unable to amend their cost prices to reflect the increased cost incurred when Co-op applied the charges.
There were also weaknesses in training, policies and processes for buyers, and the poor functioning of existing IT systems was found to have contributed to the retailer’s code breaches.
Tacon said: “The practices and behaviours described in my report were widespread... At the core there was inadequate governance to oversee and manage code compliance.”
“The clear conclusion is that Co-op needs to take a very different approach to code compliance.
“I have made robust recommendations for urgent action and I will be helping the retailer change its approach by monitoring closely how they implement those recommendations.”
The adjudicator has set down five recommendations for the Co-op to follow:
1. Having adequate governance to oversee and manage its compliance with the code
2. Legal, compliance and audit functions must have sufficient co-ordinated oversight of Co-op systems to ensure code compliance
3. Co-op IT systems must support code compliance
4. Co-op must adequately train on the code all employees who make decisions which affect a supplier’s commercial arrangements with it
5. Co-op must in any potential de-listing situation communicate with affected suppliers to enable the retailer to decide what is a significant reduction in volume and reasonable notice.
Tacon will monitor Co-op’s delivery of each recommendation and has requested an implementation plan from the retailer within four weeks.
She added: “Co-op has accepted that its focus at the time was on business recovery and it is clear that the Code was not embedded into its culture as it should have been.
“It mistakenly assumed that its brand values and desire to work in a certain way meant that it was likely to be acting in accordance with the Code and that if there were any issues with compliance, suppliers would have made the retailer aware of them.
“Co-op’s actions were not malicious – it has already repaid those suppliers it has identified as having had charges introduced without sufficient notice and is committed to working with me to change for the better.”
