The purpose of the Food and Grocery Code (the Code) is to improve standards of business conduct in the food and grocery sector. You should know about some key standards of conduct that apply to Code signatories when dealing with suppliers, and about the steps that suppliers can take to raise a complaint and resolve a dispute.
Retailers and wholesalers have been given time to transition to new or updated obligations that apply since the Code was amended on 3 October 2020.
Rules for paying suppliers
Under the Code, a retailer or wholesaler must pay a supplier for all the grocery products delivered and accepted in accordance with the grocery supply agreement (GSA).
Suppliers must be paid in the timeframe set out in the agreement but, in any event, suppliers must be paid within a reasonable time after they provide an invoice for the products.
Setting off amounts against the invoice
Generally, a retailer or wholesaler can only set off an amount against the supplier’s invoice if the supplier has consented in writing, or where the GSA allows them to do so and the amount is reasonable in the circumstances.
Limits on payments from suppliers to retailers or wholesalers
A retailer or wholesaler cannot require a supplier to pay for shrinkage (loss of grocery products occurring after a retailer has taken possession of the goods — for example, due to theft) or to enter into a GSA under which these payments are required.
The Code also limits each of the following payments that a retailer or wholesaler might ask you to make:
- payments for wastage
- funding for promotions
- payments to retailers for better positioning of groceries or an increase in allocation of shelf space
- payments as a condition of being a supplier
- payments for the retailer’s or wholesaler’s business activities (for example, a buyer’s visit to the supplier, artwork or packaging design, consumer or market research, or opening or refurbishing a store).
You cannot be (directly or indirectly) required by a retailer or wholesaler to make any payment to cover any wastage of groceries incurred at:
- their premises
- the premises of their contractor or agent
- the premises of any other entity that is a retailer or wholesaler.
However, you can agree to make payments for wastage in your grocery supply agreement (GSA) if the payments are reasonable, having regard to the retailer’s or wholesaler’s costs incurred by the wastage and if the retailer or wholesaler takes reasonable steps to mitigate those costs.
Example: payment for wastage
A supplier enters into a grocery supply agreement that clearly sets out the circumstances in which the supplier will be required to pay for wastage incurred at the premises of a retailer, and the basis of the payment.
Wastage occurs at the retailer’s premises, and the retailer incurs costs of $500 as a result. The retailer seeks compensation of $1,500 from the supplier under the agreement.
The retailer has breached the Code, as the payment is not reasonable having regard to the retailer’s costs incurred as a result of the wastage.
Remember, when requesting payments for wastage the retailer must also consider its obligation to act in good faith.
Renegotiating wastage terms
If you seek to renegotiate terms in your GSA relating to wastage (for example, you want to negotiate a lower wastage charge because you have reduced your actual wastage) the Code prohibits retailers or wholesalers from using this as an opportunity to negotiate other, unrelated terms and conditions of your GSA. This rule applies if:
- your GSA comes into force on or after 3 October 2020 (when the amended Code commenced), or
- your existing GSA is varied, renewed or extended after 3 October 2020.
Actions that vary, renew or extend a GSA
Your GSA is varied, renewed or extended if the retailer or wholesaler takes any action to modify, adjust or continue it. For example, if they submit a new purchase order under the terms of an existing GSA.
You do not have to agree to fund a promotion. A retailer or wholesaler must not (directly or indirectly) require a supplier to fund part or all of the costs of a promotion unless:
- you have agreed to do so in your GSA
- the funding is reasonable in all the circumstances. If there is a dispute about whether the funding was reasonable, it is up to the retailer or wholesaler to show that this requirement was met.
When suppliers agree to fund promotions
If you agree to fund a promotion, the retailer or wholesaler may hold the promotion only after giving you reasonable notice in writing.
Retailers or wholesalers who order grocery products from you in connection with a funded promotion:
- must be transparent about the basis on which they calculate the order quantity
- must not over-order — and if they do, and they sell any over-ordered product for more than the promotional price, they must pay you the difference between your promotional price and your full price for that product
- cannot cancel or reduce the order by more than 10% without your written consent unless they either give you reasonable written notice or compensate you for any net resulting costs, losses or expenses that you incur because they failed to give you reasonable notice.
Rules for responding to a supplier’s price increase notice
A supplier can let a retailer or wholesaler know about a price increase in writing. Within 30 days of being informed by the supplier of the price increase, the retailer or wholesaler needs to let the supplier know if they:
- accept the price increase
- accept a price increase of the groceries supplied under the GSA but not for the amount of the price increase
- won’t accept a price increase.
If the retailer or wholesaler doesn’t accept the price increase or the amount of the price increase that was notified, the supplier can request to enter into negotiations.
In our view, a retailer or wholesaler is informed of a price increase when a supplier’s written notice of the price increase is delivered to them.
Negotiating in good faith
When negotiating the retailer or wholesaler must negotiate in good faith and take all reasonable steps to conclude the negotiations without delay. While there is an expectation that price increases including related negotiations are settled within 30 days of being informed of the price increase, complex negotiations may take longer to resolve.
Retailers and wholesalers may have their own policies for dealing with these negotiations in a timely fashion — for example, a commitment to finalise all negotiations within a three month period. If so, this period commences when you inform the retailer or wholesaler of the price increase, that is, the 30 day period allowed under the Code for the retailer or wholesaler to respond to your price rise notification is not additional to the period allowed under the retailer’s or wholesaler’s policy for finalising negotiations.
The retailer or wholesaler must not routinely delay, or limit, actively engaging with suppliers on negotiations until near the end of the negotiation period.
A retailer or wholesaler cannot demand that the supplier disclose commercially sensitive information about the price increase or the related negotiations.
Requirement to report on price increase notifications
Retailers and wholesalers must report annually on how they have responded to price increase notices from suppliers. This information will be included in the Code Arbiter’s annual report, which will be publicly available from the retailer or wholesaler’s website.
New price increase provisions apply from 2 January 2021
These rules regarding price increase notifications and negotiations commence 2 January 2021. However, these new provisions do not apply to the supply of fresh fruit and vegetables, where the GSA includes a mechanism for regular price negotiations between suppliers and retailers or wholesalers, and where these routine price negotiations are concluded within five business days of the commencement of each round of negotiations.
Delisting is when a retailer or wholesaler:
- removes your grocery product from their range of grocery products, or
- reduces the distribution of your product across their stores or distribution centres and this reduction has, or is likely to have, a material effect on you.
When a supplier or wholesaler can delist products
A supplier or wholesaler may only delist your grocery product:
- in accordance with the terms of your grocery supply agreement (GSA)
- for genuine commercial reasons. For example, this includes where you have not met agreed quality or quantity requirements, have not met the retailer or wholesaler’s commercial sales or profitability targets that were notified to you or are in your GSA, or have persistently failed to meet their delivery requirements that were notified to you or are in your GSA.
Delisting as a punishment for a complaint, concern or dispute raised by a supplier is not a genuine commercial reason.
Before delisting your product, the retailer or wholesaler must generally provide reasonable written notice to you of their decision. This notice must:
- include the genuine commercial reasons for delisting the product
- inform you of your right to have the decision to delist the product reviewed by the retailer’s or wholesaler’s senior buyer for you
- inform you about your right to have the decision reviewed and to make a complaint to the Code Arbiter
- include the Code Arbiter’s contact details.
Asking for information or additional information about delisting
If you make a written request for information (or additional information) about the delisting and/or details about the reasons for a delisting, the retailer or wholesalers must promptly comply (in writing) with your request.
Rules to limit unilateral and retrospective variation
The Code limits when retailers or wholesalers can change a GSA unilaterally (that is, without the consent of the supplier) or retrospectively (that is, varies the GSA with retrospective effect).
The rules depend on when the agreement was made:
- GSAs that were made prior to 3 October 2020 and are not varied, renewed or extended after the amendments to the Code commenced on 3 October 2020 — the retailer or wholesaler is generally only able to make these types of changes if the GSA allows them to do so, and the change is reasonable
- GSAs that come into force on or after 3 October 2020, and existing GSAs that are varied, renewed or extended after 3 October 2020 — retrospective variations are banned and parties to these GSAs cannot agree to opt out of the ban. Retailers or wholesalers can only make unilateral variations to GSAs if a number of conditions are met (including that the GSA allows them to do so, and the change is reasonable).
Modifying, adjusting or continuing an existing GSA
Any actions by the retailer or wholesaler to modify, adjust or continue an existing GSA (for example, submitting a new purchase order under the terms of an existing GSA) would constitute that GSA being varied, renewed or extended.
Rules for fresh produce
If you supply fresh produce, then the retailer or wholesaler must give you any standards or quality specifications in writing and in terms that are clear, unambiguous and concise.
The amended Code specifies that ‘fresh produce’ is fruit or vegetables, including fruit and vegetables that have been pre-packaged (but excluding tinned fruit and vegetables).
Rejecting fresh produce
Retailers or wholesalers must accept all fresh produce delivered that meets the standards or specifications notified to the supplier. They may only reject the fresh produce that you supply to them if:
- you do not meet those standards or specifications
- they reject the produce within 24 hours after you deliver it to them
- they have not already accepted the produce.
If they reject the fresh produce because it does not meet the relevant standards or quality specifications, they must provide you with their written reasons for doing so within 48 hours.
The retailer or wholesaler must make any claim for damaged grocery products or shortfalls, or any similar claims, within a reasonable time and no later than 30 days after you deliver the groceries.
Example: rejecting fresh produce
A supplier delivers oranges to a retailer at 9:00 am on a Monday. The oranges fail to meet a relevant standard. The retailer rejects the oranges on Thursday.
This is a breach of the Code because the retailer did not reject the produce within 24 hours of delivery and did not provide the supplier with written reasons for rejecting the oranges within 48 hours.
A retailer or wholesaler must communicate any labelling, packaging or preparation requirements in writing and in terms that are clear, unambiguous and concise.
They generally must also give you reasonable written notice of any changes to these requirements.
A retailer or wholesaler cannot (directly or indirectly) require you to materially change your supply chain procedures during the period of your GSA unless they:
- give you reasonable written notice of the change, or
- compensate you for any net costs, losses or expenses that you incur as a result of their failure to give you reasonable notice.
Suppliers must be given certain information
Principles for product ranging must be published or given to suppliers by retailers and wholesalers, and principles for shelf space allocation must be given or published by retailers.
Also, within a reasonable time before conducting a range review, the retailer or wholesaler must provide suppliers who may be affected by the review with clear written notice of the purpose of the review and the criteria governing its decisions.
Retailers and wholesalers must act in accordance with principles
Retailers and wholesalers must act in accordance with their principles for product ranging and shelf space allocation and apply them without discrimination (including in favour of their own brand products).
Protections for suppliers’ intellectual property
Your intellectual property rights in relation to grocery products, including in branding, packaging and advertising, must be respected by the retailer or wholesaler. This includes not:
- infringing on your intellectual property rights when developing or producing own brand products
- requiring you (directly or indirectly) to transfer or exclusively license your intellectual property rights in relation to a grocery product as a condition or term of supply of an equivalent own brand product.
Protections for suppliers’ confidential information
If you disclose confidential information to a retailer or wholesaler in connection with the supply of grocery products, they:
- can only use that information for the purpose for which it was disclosed
- may only disclose or make that information available or accessible to their employees or agents who need to have that information in connection with that purpose.
The retailer or wholesaler must establish and monitor systems to ensure that they comply with their confidentiality obligations.
Rules against threats to disrupt or terminate business
A retailer or wholesaler must not threaten you with business disruption, or with the termination of your grocery supply agreement, without reasonable grounds. Retailers and wholesalers must also follow certain rules when delisting products.
Example: threatening to terminate business
During the term of a supplier’s three-year agreement with a retailer, the retailer requests payments for wastage from the supplier. However, payments for wastage are not provided for in the grocery supply agreement. The supplier refuses to pay and as a result of this, the retailer threatens to terminate the agreement.
This is a breach of the Code, as the retailer cannot threaten to terminate the agreement without reasonable grounds.
The Code says that retailers and wholesalers must at all times act in good faith towards suppliers.
More information about the good faith obligation, what it means for you and what you can do if you think a retailer or wholesaler is not acting in good faith, is available at: Acting in good faith under the Food and Grocery Code.
If you think that the retailer or wholesaler is not meeting the obligations that they have towards you, you should know how to raise a complaint and resolve your dispute.
More information about your options for resolving a dispute, and the steps to take, is available at: Resolving disputes with retailers or wholesalers under the Food and Grocery Code.