Groceries regulator to be established but not with power to fine, says Government

The Competition Commission (CC) said in 2008 that the UK grocery retail sector was highly concentrated in the hands of a few shop chains and those companies were passing on "excessive risks and unexpected costs" to their suppliers.

The CC told the Government that it should create stronger rules protecting suppliers in a Groceries Supply Code of Practice (GSCOP) and create an ombudsman to enforce that code.

The GSCOP was created, and the Government announced in May that it would create an ombudsman. It has now said that this body will operate as part of the Office of Fair Trading (OFT) and will be called the Groceries Code Adjudicator (GCA). It also outlined its powers.

The Government's response to an earlier consultation process contained its plans, and outlined the nature of the problem.

"Whilst many respondents recognised that there were many long standing and excellent working relationships between suppliers and retailers, something which primary producers rely on for the viability of their businesses, there was nonetheless a disparity of power with some retailers holding the advantage even over quite large suppliers," said the Government response. "This was about fairness in the supply chain and many respondents urged the Government to move quickly."

The Government said that grocery chains opposed the setting up of the regulator and asked that its powers be limited.

"Retailers ... generally opposed the creation of a GCA but supported it being placed within the OFT if implemented," said the Government. "Retailers were keen that the GCA should be focused on breaches of the GSCOP and not stray into other commercial areas. It must not transform itself into a supermarket regulator. It must not be a disruptive influence in the delicate competitive tension in the supply chain which until now has delivered significant benefits to the consumer."

The Government has decided that the GCA will "publish guidance on the GSCOP and make recommendations to designated retailers on improving compliance and monitor progress on how those recommendations are implemented. The GCA would also publish a report at the conclusion of an investigation".

The GCA will be able to hear complaints from any supplier, whether UK-based or not, and will be able to deal with those complaints anonymously. It will not, though, be able to fine retailers.

"On balance Government believes that the strongest deterrent to breaching the GSCOP will come through impact on business reputation," the Government said. "Large retailers will benefit if customers believe that they treat suppliers fairly but they are likely to suffer loss of custom if their reputation is damaged through confirmed GSCOP breaches which are made public."

Those powers could be granted later, though, it said.

"The Government intends to provide powers within the legislation to introduce regulations to impose penalties at a later date should evidence show that reputation alone is insufficient. We will base any decision in this area on advice from the GCA. Government believes that this is a proportionate approach to the issue," it said.