Rights and responsibilities under the food and grocery code

Delisting products

There are rules for when products can be delisted

A large grocery business may only delist a supplier’s grocery product in line with the terms of the grocery supply agreement and for genuine commercial reasons.

Genuine commercial reasons may be when the supplier:

• has not met agreed quality or quantity rules
• has not met the large grocery business’s commercial sales or profitability targets under the grocery supply agreement
• has persistently failed to meet delivery requirements under the grocery supply agreement.

Delisting as a punishment for a complaint, concern or dispute raised by a supplier is not a genuine commercial reason.

There is an obligation to give notice before delisting

Large grocery businesses must give reasonable written notice to the supplier before they delist a product, except in limited circumstances. This notice must:

• include the genuine commercial reasons for delisting the product
• inform the supplier of their right to have the decision to delist the product reviewed by the large grocery business’s senior buyer
• inform the supplier about their right to make a complaint to the large grocery business’s code mediator
• include the code mediator’s contact details.

Failure to comply with these obligations will make the large grocery business liable to civil penalties.

Price increases

Good faith applies when negotiating price rises

A large grocery business must negotiate in good faith and take all reasonable steps to resolve negotiations without delay. The negotiation period starts when the supplier notifies the large grocery business of the price increase. Price increase negotiations should be settled within 30 days of notification. However, complex negotiations may take longer to resolve.

The large grocery business should actively engage in negotiations with the supplier throughout the negotiation period. They should not continually limit or delay discussions until the negotiation period has almost finished.

A large grocery business cannot demand that the supplier disclose commercially sensitive information about the price increase or the related negotiations.

Large grocery businesses must respond to notifications within 30 days

A supplier should tell the large grocery business about a price increase in writing. Once a supplier notifies a price increase in writing, the large grocery business needs to tell the supplier within 30 days whether they:

• accept the price increase
• accept a price increase but for a different amount than proposed by the supplier
• won’t accept a price increase.

If the large grocery business doesn’t accept the price increase proposed by the supplier, the supplier can request a negotiation.

The ACCC considers that a large grocery business is informed of a price increase when the supplier’s written notice of the price increase is delivered to them.

Responses to price increase notifications must be reported

Large grocery businesses must report to their code mediators the number of:

• responses to requests for price increases
• responses that were not given within 30 days
• price negotiations started
• negotiations where the large grocery business did not conclude its position within 30 days and the number of days it did take.

Fresh produce price, labelling and quality rules

Fresh produce means fresh or pre-packaged fruit or vegetables. It excludes tinned fruit and vegetables.

These rules relating to fresh produce must be followed.

Prices or formulas must be provided

Grocery supply agreements relating to fresh produce must specify the price of the fresh produce, or the method or formula used to determine the price.

Large grocery businesses must also exercise due care in forecasting the amount of fresh produce to be supplied under these agreements.

Failure to comply with these obligations will make the large grocery business liable to civil penalties.

Labelling requirements must be provided

A large grocery business must communicate any labelling, packaging or preparation requirements for fresh produce to a supplier. It must be in clear, unambiguous and concise written terms.

A large grocery business must provide a supplier with reasonable written notice of any required changes to packaging, labelling or preparation standards for fresh produce. This is unless the change is required immediately by law. It must consider existing stock held by suppliers and any agreement about stock coverage in the relevant grocery supply agreement.

Failure to comply with these obligations will make the large grocery business liable to civil penalties.

Quality specifications must be provided

Large grocery businesses must give fresh produce suppliers all quality specifications in writing and in terms that are clear, unambiguous and concise. These specifications must also be reasonable.

Large grocery businesses must accept all fresh produce delivered that meets the standards or specifications notified to the supplier.

Failure to comply with these obligations will make the large grocery business liable to civil penalties.

There are rules for when fresh produce can be rejected

Large grocery businesses may only reject fresh produce from the supplier if all these things apply:

• the supplier doesn’t meet the quality specifications
• the produce is rejected within 24 hours after it is delivered
• the large grocery business has not already accepted the produce.

If the large grocery business rejects the fresh produce because it does not meet the relevant quality specifications, they must provide the supplier with their written reasons within 48 hours.

If the large grocery business wants to make a claim for damaged grocery products or shortfalls, or any similar claims, they must do so within a reasonable time. It must be no later than 30 days after the groceries are delivered.

Allocating shelf space and product ranging

Notice must be given to those affected by a range review

Before starting a range review, a large grocery business must give suppliers who may be affected written notice clearly stating:

• the purpose of the review
• the criteria governing its ranging decisions.

The notice must be provided to suppliers within a reasonable time.

The large grocery business must give any supplier affected by the outcome of a range review a reasonable opportunity to discuss the outcome of the review. They must include the reason for their delisting decision.

Failure to comply with these obligations will make the large grocery business liable to civil penalties.

Changing a supplier’s supply chain procedures

A large grocery business cannot require a supplier to materially change their supply chain procedures during the period of the grocery supply agreement unless they do one of these things:

• give the supplier reasonable written notice of the change
• pay the supplier for any net costs, losses or expenses that the supplier incurs because of the failure to give reasonable notice
• the supplier agrees to waive their right to compensation.

Failure to comply with this obligation will make the large grocery business liable to civil penalties.

Supplier intellectual property

The large grocery business must respect a supplier’s intellectual property rights in relation to grocery products, including in branding, packaging and advertising. This includes:

• not infringing on the supplier’s intellectual property rights when developing or producing own brand products
• not requiring the supplier (directly or indirectly) to transfer or exclusively license their intellectual property rights in relation to a grocery product as a condition or term of supplying an equal own brand product.

Failure to comply with these obligations will make the large grocery business liable to civil penalties.

Disclosing confidential information

If a supplier discloses confidential information to a large grocery business in connection with the supply of grocery products, including information about product development, proposed promotions or pricing, the large grocery business:

• may 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 for the purpose for which it was disclosed.

The large grocery business must establish and monitor systems to make sure that they meet their confidentiality obligations.

Failure to comply with these obligations will make the large grocery business liable to civil penalties.

Freedom of association

A large grocery business must not discriminate against suppliers, or provide inducements to prevent suppliers from:

• forming an association of suppliers
• associating or joining with other suppliers for a lawful purpose.

Failure to comply with these obligations will make the large grocery business liable to civil penalties.

Payments to suppliers

The code places obligations on large grocery businesses around paying suppliers.

Suppliers must be paid within a reasonable timeframe

Under the code, a large grocery business must pay a supplier for the grocery products delivered and accepted under the grocery supply agreement. This must happen in the timeframe stated in the agreement.

Suppliers must always be paid within a reasonable time after they provide an invoice for the products.

Failure to comply with this obligation will make the large grocery business liable to civil penalties.

There are rules about setting off amounts against the invoice

A large grocery business must not set off any amount against a supplier’s invoice unless several conditions are met, including if:

• the supplier has consented in writing, or
• where the grocery supply agreement allows them to do so, and the amount is reasonable.

Failure to comply with this obligation will make the large grocery business liable to civil penalties.

Requiring payments from suppliers

The code places limits on some payments that a large grocery business may ask a supplier to make.

Suppliers can’t be asked to pay for shrinkage

A large grocery business can’t ask a supplier to pay for shrinkage.

Failure to comply with this obligation will make the large grocery business liable to civil penalties.

Suppliers don’t have to pay for wastage

As a general rule, a supplier can’t be required by a large grocery business to make any payment to cover any wastage of groceries incurred at:

• the premises of the large grocery business
• the premises of a contractor or agent of the large grocery business
• the premises of any other entity that is a retailer or wholesaler.

Failure to comply with this obligation will make the large grocery business liable to civil penalties.

Wastage refers to grocery products becoming unfit for sale. For example, through being stored inappropriately or through a power outage on the large grocery business’s premises.

However, this general rule does not apply if several conditions are met, including:

• the supplier has expressly agreed to pay for wastage in the grocery supply agreement
• the payments are reasonable compared to the costs incurred by the large grocery business due to the wastage
• the agreement outlines how the payment will be calculated
• the large grocery business takes reasonable steps to lessen those costs.

When requesting payments for wastage, the large grocery business must remember their obligation to act in good faith.

A supplier may want to renegotiate terms in their grocery supply agreement relating to wastage. For example, a supplier may want to negotiate a lower charge because they have reduced their actual wastage. The code prohibits large grocery businesses from using this as an opportunity to negotiate other, unrelated terms and conditions of the grocery supply agreement.

Failure to comply with this obligation will make the large grocery business liable to civil penalties.

Suppliers don’t have to make payments to be a supplier

A large grocery business must not require a supplier to make a payment as a condition for stocking or listing that supplier’s products unless several conditions are met, including:

• the supplier has expressly agreed to do so in the grocery supply agreement
• the payment is made for products that have not been stocked or listed by the large grocery business during the preceding year in a quarter or more of its stores or distribution centres
• the payment is reasonable in the circumstances.

Failure to comply with this obligation will make the large grocery business liable to civil penalties.

Suppliers don’t have to pay for better positioning or increased shelf space

A large grocery business must not require a supplier to pay to secure better positioning or increased shelf space unless several conditions have been met, including:

• the supplier has expressly agreed to do so in the grocery supply agreement
• the payment is reasonable in the circumstances.

Failure to comply with this obligation will make the large grocery business liable to civil penalties.

Suppliers don’t have to pay for the large grocery business’s ordinary activities

 A large grocery business must not require a supplier to pay for any of the large grocery business’s ordinary business activities unless several conditions have been met, including:

• the supplier has expressly agreed to do so in the grocery supply agreement
• the payment is reasonable in the circumstances.

Ordinary business activities include:

• a member of the buying team visiting the supplier
• artwork or packaging design
• consumer or market research
• opening or refurbishing a store
• hospitality for the large grocery business’s staff.

Failure to comply with this obligation will make the large grocery business liable to civil penalties.

Suppliers don’t have to fund a promotion

A large grocery business can’t require a supplier to fund part or all the costs of a promotion unless:

• the supplier has agreed to do so in the grocery supply agreement
• the funding is reasonable in all the circumstances.

If a supplier agrees to fund a promotion, the large grocery business may hold the promotion only after giving the supplier reasonable notice in writing.

Large grocery businesses who order grocery products from a supplier in connection with a funded promotion:

• must be transparent about how 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 the supplier the difference between the promotional price and the supplier’s full price for that product
• cannot cancel or reduce the order by more than 10% if they’re a retailer without the supplier’s written consent
• cannot cancel or reduce the order by more than 20% if they are a wholesaler without the supplier’s written consent.

Cancelling or reducing the order rules don’t apply if the retailer or wholesaler either gives the supplier reasonable written notice or compensates the supplier for any net resulting costs, losses or expenses they incur because of not receiving reasonable notice.

Failure to comply with these obligations will make the large grocery business liable to civil penalties.

See also

Food and Grocery Code of Conduct

Enforcement of the food and grocery code