Fit for purpose? Australia launches grocery code review amid effectiveness concerns

Following New Zealand’s recent moves towards the creation of a local code of conduct​ for the highly concentrated grocery sector, Australia has now moved into the spotlight regarding its own code.

One major red flag regarding its effectiveness has been the near-zero number of complaints handled by the appointed Code Arbiters. These are individuals appointed by each signatory retailer that a food brand/supplier can approach with a written complaint if they fail to deal with the retailer directly or choose not to take the direct route.

Australia’s four signatory retailers to this code are its four largest supermarket chains – Coles, Woolworths, ALDI and Metcash – and each has their own Code Arbiter, which is allowed to engage in ‘informal discussions’ with complainants.

The scheme aimed to ensure brands and suppliers do not suffer any retaliation from the retailers, but it appears that there is next to no confidence in this process.

According to data from Treasury Australia, among the four major retailers, just two complaints were received in the 2021 to 2022 financial year, and just two in the year before that, all directed at Coles.

As such, Treasury Australia has launched a public consultation to review these dispute resolution provisions, in hopes of gathering feedback to implement useful changes to the code.

“Very few complaints from suppliers have been brought to the Code Arbiters over the [previous] two years,”​ the ministry said via formal documentation.

“There are several possible explanations for this, including that perhaps the Code is indeed having a positive effect on the industry or that disputes are being appropriately solved by the retailers directly [but it is also possible that] suppliers are unaware of the role of the Code Arbiters or are concerned about elevating complaints to the Code Arbiters [for various reasons] including fear of damaging the commercial relationship or fear of retribution.​

Also of note is that none of the suppliers that have approached the Coles Code Arbiter, former Victorian premier Jeff Kennett, over the past two years have been successful in their case or awarded any compensation.

Not fit-for-purpose​

The code also has a Grocery Code Independent Reviewer appointed directly by the government, and the current incumbent Chris Leptos has also called for changes to be made to the code.

“Australia has a highly concentrated supermarket sector, with the four largest players accounting for over 80% of market share in 2020-21 [and] their relative size gives them considerable bargaining power when negotiating with suppliers,”​ he said.

“Many suppliers believe that they cannot negotiate forcefully with the big supermarkets because of the risk of being down-shelved or delisted, and the resulting drop in sales volume means their unit costs would increase dramatically.​

“Some suppliers also believe that they cannot candidly complain to the supermarkets when there is poor conduct by supermarket buying teams, because the likelihood and consequence (perceived or real) of retribution is significant.​

“There are virtually​ no complaints in recent years being processed through the Code mechanisms though there are lots of informal complaints coming to me – [showing that] the formal Complaints process in the Code is not fit for purpose.”​

Leptos also highlighted that the level of confidence in the Code Arbiters is low, posing a serious issue in an environment where complainants are afraid to approach the retailers directly for fear of retribution.

“The issue that has been discouraging suppliers, in addition to fears of retribution from retailers, is that the Code requires them to go on the record to make a formal complaint [and] many may not realise that there are strong confidentiality protections built into it,”​ he said.

“Each of the four major supermarkets also has a Code Arbiter with the power to impose binding determinations of up to A$5mn to compensate suppliers for any harm caused by adverse retailer actions. ​

“The Code Arbiters must also be alert to the possibility of retribution against suppliers once a complaint is made – [and] on the evidence I see, suppliers to date haven’t had a high level of confidence in the protections afforded to them by the Code Arbiters.”​

The code is currently signed by retailers on a voluntary basis - a further review regarding the possibility of making it mandatory is set to be launched later this year.