Conduct Codes need Consequences

Learnings from global Grocery Code experience.

Much has been written about the Australian Government Interim Review on Grocery retail buyer’s Code of Conduct, published April 2024. Discussions have covered issues like price-gouging and market concentration which, although important, are not directly related and risk overshadowing the debate on the Grocery Code in Australia. Focus must remain on the primary purpose of the code, which is to foster fair play in negotiations between retailers and suppliers.

The findings of the Australian Interim Review shed light on critical shortcomings within the Australian Grocery Retail Code of Conduct, particularly its lack of consequences (there are no powers to fine for breaches) and the ability of retailers to override code clauses through individual supplier agreements. This latter issue is not unique to Australia; similar challenges exist in other jurisdictions, including the UK, often hailed as the gold standard code. However, when power imbalances and fears of retribution lead to suppliers being coerced into unfair agreements, it undermines the very principles the code aims to uphold.

The voluntary nature of the code has been raised as a potential weakness, but I would cite the ability of retailers to leverage waiver clauses in their supply agreements with suppliers as more concerning. New Zealand’s decision to adopt elements of the Australian ACCC code while incorporating additional provisions demonstrates a proactive approach to regulating the grocery sector. By making the code mandatory for designated retailers and prohibiting the waiver of its clauses in supply agreements, New Zealand is prioritizing fairness and accountability in the industry. 

The lack of an independent complaint procedure, and concerns about potential retribution have hindered the full engagement of grocery suppliers with Australia’s Code of Conduct since its inception in 2015. This environment creates a reluctance among suppliers to openly engage with the code or to escalate breaches for fear of repercussions. The appointment and employment of Code Arbiters by the retailers themselves further raises questions about impartiality and independence.

While the code itself may not solve all supplier problems, it can serve as a valuable tool to aid savvy suppliers who have skilled account managers, trained to leverage its provisions. These individuals can navigate the complexities of the code and use it to their advantage in negotiations with retailers. Suppliers should stop enabling retailers in circumventing code provisions, critically refusing to sign supplier agreements that undermine the code’s principles. 

The climate of fear among suppliers in Australia, where mentioning the code could potentially lead to retribution, remains a significant barrier to effective engagement with the Grocery Code. Overcoming this fear requires creating incentives for retailers to genuinely care about observing the code and treating suppliers fairly.

The Ingredients of Success 

Experience from other markets, including the UK demonstrates how a combination of factors drives retailers to prioritise compliance with code provisions. 

Public Relations (PR): Creating awareness and understanding among retailers about the importance of fair and transparent practices in the grocery supply chain can highlight the benefits of compliance, as well as the risks of adverse coverage.

Fines: Meaningful penalties for non-compliance can serve as a deterrent and incentivize retailers to adhere to the code. The power to fine should be proportionate to the severity of the violation and applied consistently to ensure accountability across the industry. In Australia, the recent interim review has recommended penalties for serious breaches of the greatest of either $10,000,000, or 10% of retailer annual turnover, or x3 the benefit they gained from the breech, any of which would certainly focus thinking in buying offices across the market.

Positive Motivation: Providing positive incentives for retailers to comply with the code can further encourage participation and engagement with suppliers who are keen to invest in genuine category growth, insight driven opportunities.

Sentinel’s three top tips for suppliers to leverage a Grocery Code or pre-Code environment:

1. Recognise the breech. Understanding the key clauses of the Grocery Code does not require you to be a legal expert, but it is crucial for effectively navigating negotiations and ensuring compliance. 
2. React to disarm the breech. Asserting your understanding of the Grocery Code during negotiations is key to securing favourable outcomes. Demonstrate your knowledge of the Code and willingness to invoke key clauses to strengthen your negotiating position.
3. Restore the business mood. maintaining a focus on bottom-line performance is crucial for both suppliers and retailers. Do not let code breaches erode trust and communication – find a resolution, move on, and get back to building business. 

Sentinel Management Consultants’ global presence and specialized expertise in navigating the complexities of codes of conduct, particularly in the UK and Australia. With their extensive experience and commitment to empowering suppliers, they offer tailored insights and resources to help businesses thrive in competitive markets. Contact us today to discuss how we can assist.

Editorial Credit:
Coles – Nils Versemann / Shutterstock.com
Woolworths – Daria Nipot / Shutterstock.com