As we all know, major Grocery retailers across Australia have agreed to the voluntary Food and Grocery Code of Conduct, which ensures they adhere to certain standards of conduct whilst engaging with suppliers.
As a supplier, this provides you with a valuable tool to engage and negotiate your terms and conditions with these powerful retailers. The catch? You must do so before the end of June 2016, or expose your organisation to unfair contractual arrangements at the helm of the retailer.
Ask yourself the following questions:
- Have you evaluated your retailer terms and conditions for opportunities to mitigate any potential risks?
- Do you understand your risk exposure if you fail to negotiate any new terms and conditions of your Grocery Supply Agreements (GSA)?
- What risks are we retaining and which ones do we want to transfer?
- How do our insurance coverages respond to the terms and conditions of the GSA?
The Code is a ticking time bomb for suppliers and the ACCC have given you a defuse kit, you just need to use it!
I’ve written this blog to ensure you understand the importance of taking action, and most importantly, seizing the opportunity to have a say in the terms and conditions you sign.
After all, the Code of Conduct has been implemented for a reason so, in case you’ve forgotten, let’s do a quick recap of why you need to engage with the Code.
Why you need to care about the Code of Conduct
The Code of Conduct exists because the ACCC acknowledge the history of unconscionable actions from some retailers, who leveraged their dominance of the market to bully and intimidate their suppliers.
You may remember the milk price wars between Woolworths and Coles, a prime example of why the Code matters. During this period these companies were able to force suppliers to comply with their promotions and wear the cost of supplying the retailer. In certain situations, this meant suppliers were obligated, unless they wished to face severe legal ramifications, to contribute anywhere from 10 to 50 percent of their profits to the retailers promotion. Essentially sacrificing their revenue to provide the retailer with further dominance in the market.
Similarly, some major retailers have the capacity to retrospectively change their terms and conditions after you sign, which can drastically increase your risk exposure and cause untold damage to your business. But risk has both an upside and a downside. Just as the GSA has the potential to impose damaging conditions on your business, the renegotiation provides an opportunity to position trading conditions in your favour. This is serious stuff, an opportunity versus calamity scenario, and it’s why you have to care about the Code.
What can I do to protect my business?
Firstly, you’re operating within a strict time frame, so you have to act fast – new terms and conditions are finalised by the end of June 2016. Major retailers are relying on suppliers being complacent with reviewing their terms and conditions, so make sure you’re not one of them.
Negotiating with a supplier may seem daunting, but remember you have backing from the ACCC, whom will be watching with interest. It’s not just you facing the big boys, so don’t play into the retailers hands. Be the David of suppliers and leverage the ACCC as the slingshot to take down the Goliaths.
Here are five key points you need to consider when reviewing your terms and conditions:
- Are you aware of what should be included in the GSA? For example, wastage payments.
- Do you understand the key obligations that retailers are prohibited from, unless you agree to them in the GSA? For example, requiring retrospective variations.
- Have you identified key areas of the draft GSA’s you want to negotiate?
- Are you aware of any contract variations from your current GSA?
- Have you identified the risk implications to the business if you are unable to negotiate alternate terms and conditions and how you are going to manage them? For example, indemnities.
Remember, retailers are banking on getting these through and it will be your fault if you’re complacent in negotiating the terms and conditions.
Actionable steps you can take
1. Acknowledge the risk
Not all risks to your business will be food safety risks, the GSA is one of a number of enterprise level risks that can cause damage. You need to be viewing the GSA as a risk to your business, and your objective needs to be to mitigate the downside and maximise the upside.
2. Engage your legal advisors
You need to immediately engage with legal advisors, who are accredited practitioners of the Code of Conduct and the implications it can have on your business.
3. Prepare to negotiate
You should be preparing to negotiate with your retailer with a robust understanding of the terms and conditions they are expecting you to accept. Remember, if you do none of the above you implicitly accept their proposed terms and conditions – which could see you potentially lose millions.
4. Review your existing risk management plan
You must review your existing risk management plan to ensure you develop an understanding of which Terms and Conditions scenarios that could have a detrimental impact on your business and how well you are currently controlling that risk exposure. This could influence the level of stock you hold, your production scheduling process and also your relationships with your suppliers to properly address the risks arising from a GSA.
It will also be crucial to involve insurance advisors with an understanding of the Code of Conduct and the construction of insurance policies to ensure that coverage aligns with the Terms and Conditions you are able to negotiate.
5. Manage and review retailer terms and conditions
Finally, if you’re unsure how to position your business to avoid the risks that a GSA is posing, reach out to the Victual team today for a better understanding of how to manage and review retailer terms and conditions, what precisely you should negotiate for, how to best manage the related risks and an assessment of your insurance coverage.
Or have you ever wondered how does your organisation’s risk maturity stack up against your counterparts’ in the Food and Beverage industry? Take our Risk Maturity Survey and receive your free, personalised Risk Maturity Report.