Food and Grocery Council a constant presence
Interestingly, the Food and Grocery Council has been lobbying for a code for more than a decade. In an interview with RNZ in November 2020, then-Food and Beverage Council chief executive Katherine Rich – of Dirty Politics fame – said to get products on the shelves, supermarkets would demand a gross margin of anywhere between 30 and 45 per cent.
“And then there will be additional costs to promote, shelf costs, merchandising costs; there’ll be additional claims, rebates, any opportunity to get more income out of you. The list is endless.”
At the time, suppliers had little to no negotiating power, and with fears they’d be given the boot, suppliers didn’t feel at liberty to speak or were fearful of retribution, she said.
“I’m saying that we have many food and grocery manufacturers who have either gone out of business or had to shut down or move their product offshore for development because you just can’t make a normal profit.”
It means while New Zealand produces enough food to feed 40 million people, it exports 80 per cent of that food overseas. Meanwhile, 15-20 per cent of the country faces moderate to severe food insecurity at any one time.
The Grocery Supply Code in a nutshell
The Grocery Industry (Grocery Supply Code) Amendment Regulations will now force grocery retailers and suppliers to have copies of contracts, which, reading between the lines, suggests this hasn’t been the case, shockingly.
Said contracts must be made in good faith and specify: reasonable delivery of the goods, circumstances where goods might be rejected, payment times, quality and quantity requirements, and circumstances where a supermarket might wish to give suppliers the boot.
Retrospective changes to a contract are outlawed, and any variations to a contract must take into account the benefits, costs, and risks to both parties. In other words, each party can’t increase their prices willy-nilly.
The code also prohibits supermarkets charging suppliers for ‘shrinkage’ – circumstances where money goes down the drain as a result of theft, accounting errors, or other losses after a supermarket has possession of the products. Same goes for wastage, unless the supplier has been negligent.
The code also addresses premium real estate, à la shelf pricing, where supermarkets must now publish and supply all parties with its product-range and shelf-range principles.
Shelf allocation allows suppliers to pay more for areas that are eye-level, for example. Said shelf space might be adorned with ‘shelf wobblers’, a marketing tool where labels are stuck to a shelf and literally wave to customers, giving them an edge against competitors.
Code close but no cigar
Here’s where the code falls flat. While it attempts to level the playing field between retailers and suppliers, there’s nothing that addresses competition among suppliers. There is a clause that prohibits supermarkets from discriminating against certain suppliers, but it’s directed at supermarket in-house labels.
As another example, although the code says suppliers can’t pay for any business activity – field trips to the fizzy-drink factory, artwork or packing design, supermarket staff parties, or merchandising or renovations – said business activity can be purchased if deemed reasonable. The same rules apply for funding promotions.
Reasonableness in both contexts is wide-sweeping insofar as the measures need to benefit the supplier in some form. It could mean multinational food suppliers with big marketing budgets will continue to offer five items for the price of one and pay for elaborate singing and dancing displays that lure in customers.
Some positives
Breaches of the code could result in fines of up to $3m (or 3 per cent of turnover for businesses) and $200,000 for individuals, which is a deterrent to ensure supermarkets are better behaved.
While smaller suppliers may be sighing, wishing they had bigger marketing budgets, there’s now an opportunity to address the supplier competition issue by creating a union of sorts through the code’s new freedom of association clause.
There’s also a non-competition clause, which prevents supermarkets from contracting with suppliers on the condition they don’t sell their products elsewhere. It means we could be seeing more farmers selling their goods in little carts on the side of the road.
In other words, we might be seeing fewer loosey-goosey contracts. But with the supermarket reforms failing to divest supermarkets of their duopoly status, there’s nowhere else for said suppliers to go.
Sasha Borissenko is a freelance journalist who has reported extensively on the legal industry.
