Plan to shield suppliers from grocers' bullying

Supermarket giants face being named, shamed and fined if they bully their suppliers, under plans unveiled by the Government yesterday.

The Groceries Code Adjudicator (GCA) will monitor the 10 UK grocers with turnover above £1bn – Tesco, Asda, Sainsbury's, Morrisons, Waitrose, Marks & Spencer, Aldi, Lidl, Iceland and the Co-operative Group – and will take action against any which, for example, exert unwarranted financial pressure on suppliers, make retrospective changes to contracts, or impose prohibitive payments on suppliers to have their products sold in stores.

The adjudicator, which will sit within the Office of Fair Trading (OFT), will not initially fine the supermarkets if they breach the new Groceries Supply Code of Practice (GSCOP), which was introduced in February this year.

The Government believes a bigger penalty is that the grocers will lose sales if "their reputation is damaged through confirmed GSCOP breaches which are made public".

Powers will, however, be provided to impose financial penalties at a later date if the "bad publicity" sanction does not prove not sufficient. The Government said it would publish a draft Bill later this year.

The supermarkets reacted angrily to the proposals, which they said would add "unnecessary costs" and lead to higher prices for consumers. Each of the 10 retailers will have to pay about £120,000 a year to fund the GCA.

A Sainsbury's spokesman said: "We do not see the need for a Grocery Code Adjudicator", adding that the effectiveness of the code of practice, which gives suppliers greater protection, should have been assessed for longer before the introduction of further legislation.

Stephen Robertson, the director general of the British Retail Consortium, called the GCA a "quango", which would "reduce the efficiency of the supply chain, and customers will pay the price".

But the Government's plans do not go as far as they might have done. The GCA will not come into force until 2012, which is four years after the Competition Commission first recommended the creation of an ombudsman in April 2008.

And the term "ombudsman" has been dropped after the Government decided this title would have been more appropriate for a body investigating disputes directly involving consumers.

Bryan Roberts, the global research director at Planet Retail, said: "If any fines were to make a difference, they would have to be in the millions of pounds and it is unlikely that any government department would levy this type of fine."

Mr Roberts also stressed that providing suppliers with anonymity was an "important" step, as they would fear losing lucrative business with the grocers if they were identified.

James Lowman, the chief executive of the Association of Convenience Stores, welcomed the proposals as a "pro-competitive step that will prevent the worst abuses of buyer power in a market place that is so consolidated that it presents a real risk to consumer interests".

Shop prices flatline in July

Consumers were cheered by overall shop price inflation remaining at 1.5 per cent in July, as hefty discounting by retailers led to a fall in non-food prices.

However, people are starting to feel the impact of higher food prices, such as on bread. Last month saw the fastest rise in the price of wheat in more than 30 years, partly driven by droughts in Russia. This contributed to an increase in the annual rate of food inflation to 2.5 per cent last month, up from 1.7 per cent in June, according to the British Retail Consortium and Nielsen survey.

Stephen Robertson, director general of the BRC, said: "Problems with production in large wheat exporting countries, such as Russia and Canada, could put pressure on overall food inflation in the coming months."

Aggressive discounting, particularly at furniture and flooring retailers, pushed down non-food inflation to 1 per cent in July. This was the lowest annual rate since November and compared with1.4 per cent in June.