by Tim Atkin

Time to call in the ombudsman

Gordon Brown’s government may be running out of time as well as ideas, but before it turns its attention to the forthcoming election has it belatedly decided to curb the power of the multiple grocers? So it would appear. Last week the Department for Business, Innovation and Skills announced that it has accepted the Competition Commission’s recommendation to appoint a supermarket ombudsman.

It’s not entirely clear what powers the new department will have — and how much pressure the supermarkets will bring to bear on the government before it even starts work — but at the very least it should enforce the new Groceries Supply Code of Practice (GSCOP) which comes into force on February 4th. Whether or not it will have the authority to impose fair prices is another matter.

Announcing the decision, the consumer affairs minister, Kevin Brennan, conceded what most people know already: "The revised GSCOP is a great improvement on the current regime. However, the power that large grocery retailers remain able to wield over their suppliers can still create pressures on small producers, especially in these difficult economic times, which ultimately may impact on consumers. Free and fair competition is the key to a healthy market and it is right that there should be an enforcement body to make sure that consumers are getting the best value for money."

It all depends on what you mean by value for money, of course. The British Retailer Consortium (effectively a mouthpiece for the supermarkets) argued last week that the new watchdog would raise prices. This is a familiar tactic. Whenever they are threatened with measures that might damage their profitability, the supermarkets invariably claim that consumers will lose out. In other words, stuff quality and the impact of the multiple grocers’ deal-driven agenda on the livelihoods of suppliers, and enjoy the cheap prices while they last.

What will the ombudsman do about the flagrantly unequal relationship between the supermarkets and the wine industry? There are plenty of things that require his attention, from straightforward commercial bullying to business practices that are unethical at best and arguably fraudulent. Here are nine recent examples:

 Agreeing promotional volumes on which fixed costs are amortised, then ordering half of the volume agreed, making a marginal deal unprofitable.

 Imposing further fixed fees (gondola end) to clear the balance when a promotion didn’t achieve the volumes forecast.

 Demanding money up front to look "favourably" on a particular business.

 Asking suppliers to provide business class return flights to the Southern Hemisphere for buyers.

 Reneging on agreed deals, where stock had been labelled and set aside.

 Imposing a 2% reduction in pricing to fund a "store opening programme".

 Imposing obligatory participation in wine category promotions, two or three times a year, with full retro support.

 Sending invoices to suppliers for unspecified "marketing costs".

 Imposing a charge of £1000 per annum per wine to feature on a website.

Most people would agree that the multiple grocers have done a great deal to popularise and democratise wine in the UK since the 1964 Licensing Act enabled them to sell alcohol in their stores. But the size of their market share (71% of the off-trade before First Quench closed the majority of its stores) and the negotiating power this gives them has got out of hand. Remember that only four retailers (Tesco, Sainsbury’s, Asda and Morrison’s) control more than half of the UK off-trade.

The fact that the wine industry — unlike soft drinks or beer — is so fragmented plays into the hands of the supermarkets. There are no "must stock" items, huge surpluses in parts of the wine world and an endless queue of desperate producers. Put bluntly, the supermarkets get away with bad behaviour because they can.

There are two ways of looking at this. One is to accept it as routine and set aside money for additional charges. "When you go into business with a supermarket you should know what you’re getting into," a leading agent told me, "and if you don’t you’re an idiot. As a key supplier, you have an implied responsibility to help buyers hit their targets. Sometimes you have to be flexible." The other response is to refuse to sell wine to the supermarkets, favouring independents, high street specialists and the on-trade. Failing that, you can pull out of the UK altogether.

Sooner rather than later, the ombudsman needs to act, and not only to protect the wine business. For all their talk of partnerships, the supermarkets treat most of their suppliers in a similar way. As this column has argued before, the government should make it illegal to sell alcohol below cost, even on promotion. Increasingly, I am coming round to the view that it should also impose a minimum price for a bottle of wine. If this were, say, £3.99, it would enable everyone — producer, agent and supermarket — to make a profit. As things stand, one gets rich at the expense of the other two. Whatever the supermarkets may argue, that’s not good for punters either.

Originally published in Off Licence News

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