OFT steps up inquiry into allegations that supermarkets bully suppliers over prices

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The Independent Online

The UK's top competition watchdog stepped up its investigation yesterday into allegations that supermarket groups bully their suppliers into lower prices.

The Office of Fair Trading, reporting back on its initial inquiry, said it had received widespread criticism from suppliers about the Code of Practice that governs the country's four biggest supermarket chains. The code was set up in March 2002 after Tony Blair, the Prime Minister, accused Tesco, J Sainsbury, Asda and Safeway of exploiting their suppliers.

Despite finding a "widespread belief" among suppliers that the code was ineffective, the watchdog said it needed more evidence before it could penalise any supermarket group. Since the code was adopted, the OFT has received just one written complaint about an alleged breach of the code - from Express Dairies about Safeway - but because the contract was signed before the code came into effect it was deemed outside its scope.

Penny Boys, the OFT's executive director, said: "Our review has shown that dissatisfaction among suppliers with the supermarkets code continues." She said the watchdog planned to launch a comprehensive audit into the relationship between each of the four supermarkets groups and its suppliers.

The investigation will focus on suppliers' most widespread gripes, such as the length of time they have to wait to be paid; instances where suppliers are forced to contribute to supermarkets' marketing costs; the stipulation of lump sum payments as a condition of supply; and retrospective reductions in price during the period of a contract.

The OFT said its 12-month review had unearthed 20 complaints about alleged breaches of the code. But none of the information received from respondents was detailed enough for the watchdog to work out which supermarket was the guiltiest or whether the allegations stood up. Ms Boys said the fresh audit would seek to establish "hard facts" about whether the supermarkets complied with the code.

The main deterrent hindering the code was suppliers' fear of complaining, the OFT said. Nearly three-quarters of trade bodies and individual grocery suppliers who responded cited a fear of complaining. Paul Smiddy, a food retail analyst at Robert W Baird, said this "highlights the climate of terror that the supermarkets have engendered".

The OFT review found that Asda and Tesco stood out as the toughest negotiators, with more than half the respondents reporting a reduction in their relative bargaining power with the country's top two supermarket chains. Both groups denied this was the case, although Asda admitted receiving two written complaints from suppliers alleging it had breached the code.