The Co-op Group has been told to make major changes to its governance, systems and processes after it was found to be in breach of the Groceries Supply Code of Practice.
Christine Tacon, adjudicator of the code, said the retailer had fallen foul on two counts: failure to provide reasonable notice to suppliers of decisions to de-list products; and varying supply agreements unilaterally and without reasonable notice in the way it applied two specific charges.
After her final report was published this week, the Group sent a letter of apology to suppliers. It has already paid refunds to those affected.
Jo Whitfield, chief executive of Co-op Food, said: “We are sorry. 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 have also 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 Groceries Code Adjudicator during the investigation and have worked hard to fix things as quickly as possible, including refunding over £650,000 to suppliers.”
The watchdog launched the investigation last March, and found the Group had de-listed suppliers with no notice or short, fixed notice periods that were not reasonable in the circumstances.
The retailer’s conduct in introducing depot quality control charges and benchmarking charges also breached the code and 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.
She said the Group’s actions were “not malicious” but identified weaknesses in training, policies and processes for buyers and the poor functioning of existing IT systems, adding: “At the core there was inadequate governance to oversee and manage code compliance.”
She has set down five recommendations:
- The Group 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 systems to ensure code compliance
- IT systems must support code compliance
- The Group must adequately train on the code all employees who make decisions which affect a supplier’s commercial arrangements with it
- The Group 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 adjudicator will monitor the retailer’s delivery of the recommendations and has requested an implementation plan within four weeks.
Ms Tacon said the Group would not be fined but will have to pay the full cost of the investigation, and of her oversight of the implementation process.
She said the Group “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.”
In a statement, the Group said it had taken “decisive steps to ensure it treats suppliers fairly, including providing refunds to those wrongly impacted by the introduction of charges and retraining over 1,000 colleagues to embed a culture of code compliance in line with its spirit and requirements”.
It confirmed it has undertaken major changes to its governance processes and improved its systems, following a wide-ranging root and branch review of all supplier dealings, including an independent review of depot processes which was launched once matters were raised with the business.
To transform ways of working, it has unveiled a new supplier charter and created a new, simpler charging process, removing some charges and reducing others.
New policies and processes are in place to ensure reasonable notice periods are given, supply agreements are recorded consistently, disputes are settled swiftly, and discrepancies are dealt with smoothly.
It has also launched a dedicated financial helpline for suppliers, and trained suppliers on its systems.
And it says it took steps before the watchdog began its investigation, refunding payments where a supplier was charged for benchmarking and quality control – £500,000 before the investigation and a further £150,000 during the investigation.
It introduced a new delisting process to manage de-lists and reductions in demand consistently and fairly in accordance with the code, and reviewed its training on the code for colleagues.
A director of supplier relationships has been appointed, with a dedicated team; suppliers have been surveyed for feedback; and supplier listening groups have been relaunched to improve communication, share ideas and address challenges.
The Group says it will continue to work closely with the adjudicator over the next few months to implement, review and audit its action plan in response to the findings, and improve IT systems “to make the Co-op transparent, consistent and easy to do business with”.