£1.3m bill for Co-op Group grocery code breach

By Rod Addy contact

- Last updated on GMT

Tacon's verdict found the Co-op Group had breached two counts of the GSCOP
Tacon's verdict found the Co-op Group had breached two counts of the GSCOP
The Co-op Group must overhaul its processes and face costs of £1.3m after Groceries Code Adjudicator (GCA) Christine Tacon announced it had breached the Groceries Supply Code of Practice (GSCOP).

Announcing her verdict today (25 March), she found the retailer had breached two counts of the Code. It had failed to provide reasonable notice to suppliers on decisions to delist products and had varied supply agreements unilaterally and without reasonable notice in the way it applied two specific charges. She has given it four weeks to comply with her subsequent recommendations.

Tacon has the power to impose fines on retailers for GSCOP violations, representing up to 1% of their turnover. However, she reported that she did not consider Co-op Group’s actions to be serious enough to merit such a fine and, instead, has required the group to cover all costs of the inquiry, totalling £1.3m, plus additional monitoring expenses.

Meanwhile, the Co-op Group issued an official apology to its suppliers alongside Tacon’s verdict and revealed it had already taken several steps to reform its processes before the GCA probe began. These included introducing a new delisting process to manage delists and reductions in demand in accordance with the Code; reviewing GSCOP training for colleagues; and retraining those dealing with suppliers.

Supplier relations had also been overhauled, the Co-op Group reported. A director of supplier relationships, supported by a dedicated team, had been appointed and a survey of all its suppliers had been initiated for feedback on their dealings with the Co-op. It had also relaunched supplier listening groups to improve communication, share ideas and address challenges.

£650,000 refund

It had now also fully refunded suppliers £650,000 where they had been wrongly charged for benchmarking and quality control.

It unveiled a new suppliers’ charter at the same time as Tacon’s announcement.

New Co-op Group's suppliers charter

• A new, simpler charging process, removing some charges and reducing others;
• new policies and processes to ensure reasonable notice periods are given, supply agreements are recorded consistently, disputes are settled swiftly, and discrepancies are dealt with smoothly;
• a dedicated financial helpline for suppliers to raise any queries;
• trained suppliers on Co-op systems.

The GCA launched the investigation on 8 March 2018 after an 18-month period of significant engagement with Co-op. During the probe, the retailer accepted it was unable to get to the bottom of issues and could not demonstrate that it had taken remedial action in all the relevant circumstances.

In reaching her findings, Tacon interviewed a broad cross-section of Co-op suppliers, as well as employees of the retailer, and examined documents provided by the Co-op and suppliers.

Delisting

She found that the retailer delisted suppliers with no notice or short, fixed notice periods that were not reasonable in the circumstances. It had also applied standard notice periods, contrary to the Code and her guidance, which specify that notice of delisting should be considered on a case-by-case basis.

The retailer’s conduct in introducing depot quality control charges and benchmarking charges also breached the Code. The Adjudicator found this caused particular difficulties for suppliers with fixed-cost contracts, as they would not be able to amend their cost prices to reflect the increased cost incurred when Co-op applied the charges.

There were weaknesses in training, policies and processes for buyers and the poor functioning of existing IT systems contributed to the retailer’s Code breaches, Tacon claimed. She made five recommendations for ways in which the Co-op Group should improve.

Tacon's five recommendations

• The Co-op must have adequate governance to oversee and manage its compliance with the Code;
• legal, compliance and audit functions must have sufficient co-ordinated oversight of Co-op systems to ensure Code compliance;
• the Co-op’s IT systems must support Code compliance;
• the Co-op must adequately train on the Code all employees who make decisions which affect a supplier’s commercial arrangements with it; and
• the Co-op must in any potential de-listing situation communicate with affected suppliers to enable the retailer to decide what is a significant reduction in volume and reasonable notice.

“The practices and behaviours described in my report were widespread," ​she said. "Systems, processes, business practices and the ability of different parts of the retailer to affect suppliers’ risks and costs of trading with the company all contributed to Co-op breaking the Code. At the core, there was inadequate governance to oversee and manage Code compliance.

“The clear conclusion is that Co-op needs to take a very different approach to Code compliance. I have made robust recommendations for urgent action and I will be helping the retailer change its approach by monitoring closely how they implement those recommendations.”

Tacon said she would monitor the Co-op’s delivery against each of the recommendations and has requested an implementation plan within four weeks.

Pay full cost

“Ultimately, I launched this investigation to help Co-op to get things right for the future. The Co-op will, however, pay the full cost of the investigation and my costs in overseeing the implementation of the recommendations.

“Co-op has accepted that its focus at the time was on business recovery and it is clear that the Code was not embedded into its culture as it should have been. It mistakenly assumed that its brand values and desire to work in a certain way meant that it was likely to be acting in accordance with the Code and that if there were any issues with compliance, suppliers would have made the retailer aware of them.

“Co-op’s actions were not malicious, it has already repaid those suppliers it has identified as having had charges introduced without sufficient notice and is committed to working with me to change for the better.”

The Co-op Group welcomed the GCA’s finding that it had neither been “malicious” nor acted in a way “intended to result in gain”.

‘Root and branch review’

Jo Whitfield, Co-op Food’s chief executive officer, has written to all Co-op suppliers to apologise and detail the business’ next steps. “We are sorry,"​ she said. "We’ve gone to great lengths to put these things right and have undertaken a root and branch review of all our supplier dealings.

“We were focused on rescuing the Co-op and doing right by consumers, but we should also have given more thought to the potential impact those planned changes would have on our suppliers. It is clear we tried to move more quickly than our systems, processes and people could handle.

“We co-operated fully with the GCA during the investigation and have worked hard to fix things as quickly as possible, including refunding over £650,000 to suppliers.”

Related topics: Legal

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