Traditional ‘handshake’ supply agreements not good enough for $25b grocery sector

by | Apr 16, 2024 | News

Stamping out old-style ‘handshake’ supply agreements from New Zealand’s $25 billion grocery sector will help level the playing field and address a historical power imbalance and pressure tactics between the major retailers and the many thousands of businesses who supply them with produce and goods.

Grocery Commissioner, Pierre van Heerden, says new rules taking full effect this month will help drive more effective negotiations between the major supermarkets and suppliers, creating opportunities for suppliers to thrive, and deliver long-term benefits for Kiwi consumers at the check-out.

Mr van Heerden says the new Grocery Supply Code – which took full effect from 28 March 2024 – will for the first time provide transparency and certainty for suppliers, ensuring appropriate and comprehensive agreements with supermarkets and “encourage suppliers to negotiate the specifics of deals before signing”.

“A handshake or verbal agreement is no longer good enough, and suppliers should not feel pressured into signing an agreement without the chance to negotiate the terms with a supermarket first.

“As one of the largest sectors in New Zealand, Kiwi shoppers should trust they are getting a fair deal at the check-out… and that suppliers of their trusted products are being treated fairly and transparently by supermarkets.

“This is a $25 billion sector, and with deals often being made ad-hoc, verbally and at times pressuring small suppliers, this new Grocery Supply Code is about formalising more comprehensive agreements – creating more transparency and certainty for suppliers about what they are signing up to, protecting them from unfair conduct, so they can better compete and succeed.”

With the Code now in full effect, the Commission will be monitoring supermarkets closely, looking at their compliance with the Code and also whether any improvements need to be made to the rules put in place.

Open letter to the sector

The Grocery Commissioner has today sent an open letter to the sector, highlighting the Grocery Supply Code, and reiterating the obligations on regulated grocery retailers – Foodstuffs South Island, Foodstuffs North Island and Woolworths New Zealand.

The open letter reminds suppliers that there is no deadline for them to have signed any agreements from retailers. They are encouraged to take their time to review the terms, seeking legal advice or clarification from retailers if required.

The open letter also highlights the Commission’s expectation that what is offered to suppliers complies with the Code but will now be monitoring compliance closely.

Major supermarkets have had six months to ensure agreements were compliant with the Code, with a grace period which ended on 28 March.

Feedback was provided to supermarkets on their draft agreements earlier this year, and the Commission has been encouraged to see the supermarkets take its comments on board. The feedback (sent within compliance letters), along with today’s open letter, have been published on our website here.

Grocery Supply Code

The Grocery Supply Code seeks to increase transparency and certainty for suppliers by creating a set of rules that regulated grocery retailers need to follow when they are dealing with their suppliers.

There are a number of protections for suppliers in the Code that prohibit retailers from requiring certain types of payments or engaging in certain conduct, unless the supplier agrees to them under the agreement.

Suppliers are encouraged to pay particular interest to these protections when reviewing agreements and only agree to waive these protections if it is beneficial to them.

A checklist has been published for grocery suppliers is to help guide their reviews of any new and amended agreements from major supermarkets and the ongoing conduct of such supermarkets against the provisions of the Code.

A fact sheet also provides an overview of the Code, as well as information on the background, key features and where to get more information.

As well as monitoring compliance with the Code, the Commission will also be looking at the effectiveness of the Code as a whole and whether any improvements need to be made to the rules that are in place.

The Commission will also be looking at how suppliers are receiving agreements from supermarkets. An example of this is where some elements of grocery supply agreements are being negotiated at a store-level – the Commission will be looking to ensure these store level deals also comply with the code.

Calling on suppliers to come forward

The Commission is calling on suppliers to come forward if there are any concerns around non-compliance or potential unfair treatment from major supermarkets. They can contact the Commission direct, or through its new anonymous reporting tool on the website here.

The recently launched anonymous reporting tool is a confidential channel which enables people to remain anonymous, removing any risk of retaliation, when coming forward to the Commission with information about concerning or inappropriate behaviour.

Source: Press release

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