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Code Review

Professor Graham Samuel Code Review – FGA Presentation

Prof. Graham Samuel presented his initial findings for the Code Review at the AFGC conference in Melbourne. His findings, and subsequent recommendations, are based on discussion with the AFGC, retailers, suppliers and the NextGen team.

Below is our perspective on the key themes of his insights to date (as presented):

Amend Good Faith

In principle we agree that the Good Faith clause as it stands now, is conceptually right but in practice difficult to define and apply. Elaborating on it, or broadening it, to encompass ‘fair dealing’ is a good thing. We would also suggest that providing indicative examples would help in the clarity of the meaning. Relying on the courts, or some escalation mechanic, to define it, will leave us broadly where we are now i.e. the retailer defines it unless suppliers formally contest it.

Independent Adjudicator

We believe that an independent adjudicator is a good thing. It has been proven to work in the UK, specifically when the adjudicator has the ability to impose fines on the retailer.

We do not believe that Prof Samuel’s recommendation of each retailer employing their own adjudicator (e.g. Coles Kennett model) is a workable outcome, it creates a number of issues:

  1. The adjudicators will be directly employed by the retailer, there will still likely be significant reticence by suppliers to approach the individual for fear of retribution

  2. There will likely be 4 different interpretations of the Code by each of the retailer/wholesaler adjudicators

  3. The operational cost will be 4x higher than a single central agnostic adjudicator

  4. The ACCC will/does not have the bandwidth or remit to manage 4 adjudicators, train them, liaise with them and ensure role effectiveness

  5. There is no evidence that post Coles ARC settlements, Kennett has had any meaningful, or scale, engagements with suppliers. This would indicate that there clearly are no retailer/suppliers issues.

Our recommendation is for a single industry independent adjudicator that is funded in whole, or in part by a levy on the participating retailers/wholesalers. There is no requirement for a ‘new government department’ as Prof Samuel indicates in his speech. There would be greater bureaucracy and cost with a retailer centric model vs a central one.

Metcash Code Compliance

Metcash agreed to ‘live by the spirit’ of the Code on its inception in March 2015. They were to review, and make a decision, in regard signing by no later than mid 2016. This clearly has not been the case. We believe it is fair for all retailers and wholesalers to be bound by the Code and as such applaud Prof Samuel’s intention to persuade Metcash to comply. We also recognise that the Code needs to be amended to reflect the unique business model that Metcash applies to doing business with suppliers and retailers.

Quite how the Code can influence the relationship between Metcash and their retail partners is yet to be fully understand. Prof Samuel does appear to have a perspective on this.

Range Reviews / Delists / General Terms

There is a general view that there is still too much flexibility and potential for poor behaviour in regard range reviews, specifically in regard delisting procedures, and the general provisions within the Code. Prof Samuel believes that expanding the Good Faith / Fair Dealing element of the Code would fix a number of these issues. Whilst in part we agree, there is significant opportunity to simplify / clarify / tighten the existing sections that pertain to range reviews, space, de-lists, promotions etc.

Price Increases

Prof Samuel was ‘animated’ when it came to the current price increase ‘application process’. We share much of his sentiment that it is not reasonable, or appropriate, for suppliers to have to share confidential information in regard raw material or conversion costs with the retailers. He also acknowledges that the inability to generate price increases represents a long term risk to Australian FMCG manufacturing.

He seemed dis-inclined to include recommendations on the price increase issue in the Code review – we will follow up with him directly in this regard as we believe that the Code could extend further into this space. The current support the Code offers is at best cryptic, at worst missing in action!

NextGen will be submitting comment on the draft report when it is available later in June.

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