Supermarket code needs to be taken with a pinch of salt

If one took at face value some of the spin from the supermarkets right now, you could be forgiven for thinking peace had broken out with their suppliers.

If one took at face value some of the spin from the supermarkets right now, you could be forgiven for thinking peace had broken out with their suppliers.

In brandishing a document titled Food and Grocery Code - Statement of Principles and Guidelines, the supermarkets are saying they have been proactive in reaching a resolution with their suppliers in which every player wins a prize.

It's a document whose genesis resulted from a meeting last September between the suppliers (food manufacturers and primary producers), the governments and the supermarkets.

And it was completed at Christmas.

It is one of the great motherhood documents of all time - which its title implies.

But it contains only one piece of tangible detail - the one that gets to the heart of the debate and demonstrates the real lack of trust between supermarkets and many suppliers.

The food and grocery code was proposed to be voluntary by its authors (the supermarkets), a point that has already been changed thanks to concerns by suppliers, in particular protests from the National Farmers Federation.

The Australian Competition and Consumer Commission chairman Rod Sims let this out of the bag last week during a Senate estimates hearing when he referred to a legally enforceable code of conduct.

There are 10 key principles contained in this first draft. These include bargaining in good faith; being fair, just and reasonable; showing respect for commercial relationships; using simple and easy to understand terms and conditions; prior agreement between the parties on all terms and conditions; full disclosure and transparency; and a confidential and supportive complaints and dispute resolution process.

But this statement of principles and guidelines now has to go through a legal sieve, one that will transform it from that feel-good guideline into a legal document nutted out by lawyers Gilbert & Tobin. This is when the fight should really get going.

Notable in the detail of these guidelines on dealing with other members of the supply chain are "never using language that suggests you are punishing, taking advantage of a suppliers' weakness or bullying a supplier to achieve a particular outcome" and "not threatening harsh outcomes such as removing product without consideration for fair process with the supplier".

These are worthy of mention because they are just the kind of behaviours Sims suggests he has identified in discussions with suppliers on an anonymous basis.

And this forms the basis of the investigation the ACCC is now conducting to ascertain whether the big supermarkets have engaged in unconscionable conduct and/or misused their market power.

Thus the feel-good Food and Grocery Code is a clear attempt by the supermarket industry to get some control over the agenda and find a manageable outcome that will not impose on them an outcome that is too onerous.

The last thing they can afford is a large layer of additional regulation that, for example, places a cap on their home-brand products or sales.

They need to be seen to be playing ball with their suppliers, the regulators and a government that, coming into an election, is sniffing the wind to work out whether consumers/voters are more concerned about the power of big business or getting cheaper products in their trolleys.

Thus the supermarket operators have gone into overdrive to push their messages to media and the government.

Woolworths has been more overt than Coles in this endeavour.

Its message has been pretty simple. Let us deal with our suppliers because whatever we are doing is delivering lower prices to the customers and that is what counts.

It's a pretty compelling argument from the public's perspective and its one that's hard for the ACCC to fight, given the second "C' stands for consumer.

It's the main reason several ACCC investigations over the past five years into the dominance of the two supermarkets have failed to achieve much.

The supermarkets, and in particular Woolworths, have also engaged in this game of underplaying their power and market share.

In briefings with the financial community on the release of the company's results, Woolworths chief executive Grant O'Brien has been boasting the chain has increased its market share.

But trawling the corridors of Canberra, the Woolworths caravan has been playing this down.

Coles and Metcash have both told investors in recent weeks that their market share has improved. And we all know Aldi has increased its footprint and share of customers over the past few years.

How can this be so? It cannot - rather it just goes to show how market share figures can be played with by using different definitions.

Figures provided by Nielsen seem to show that Coles and Aldi have risen and Woolworths and IGA have been slipping. But this is only a measure of dry goods and does not take account of much of the fresh food on offer.

The conventional wisdom is that Coles and Woolworths together have about 75 per cent of the market, give or take a little. The supermarkets have far more accurate data but it is not publicly available.

One of the other arguments now popular with the supermarkets is that as large as they are, they do not necessarily have market power over their suppliers. They point to several large food suppliers/brands that have a bigger slice of the market.

There is a graph floating around that shows Mars has more power in gum than either Coles or Woolworths, Unilever dominates the ready-to-drink tea market and Nestle corners the other hot drinks category. Campbell tops the biscuit suppliers and Coca-Cola Amatil does the same in carbonated drinks.

The suggestion is that some suppliers trump supermarkets in the market power/negotiating stakes.

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