Hard negotiation over pricing, rebates and promotional funding remains part of the grocery business, but retailers and suppliers need to know where commercial bargaining can start to create legal risk.
SupermarketNews spoke to James Craig, Partner at Simpson Grierson, about where those boundaries sit under the Grocery Supply Code, Commerce Act, and Fair Trading Act.
“Hard commercial negotiation is not, in itself, unlawful under any of these regimes. Risk arises where negotiated or imposed payment terms cross from legitimate bargaining into prohibited conduct,” said Craig.
Under the Grocery Supply Code, some conduct is prohibited regardless of whether a supplier agrees to it.
Regulated grocery retailers cannot require shrinkage compensation or wastage payments for stock under the retailer’s control. They also cannot retrospectively vary a supply agreement, such as backdating a rebate to an already-traded period.
Other conduct depends on whether it is reasonable, including payments for listing or stocking, payments towards the retailer’s business activities, and payments that fund the costs of a promotion. Reasonableness is assessed against the likely benefit to each party and the retailer’s own cost contribution.
“The main risk here comes from skipping the framework, not from negotiating hard.”
Retailers cannot cut an order that is part of a funded promotion by more than 10 percent without written consent, set off an amount against a supplier invoice without written consent, or vary a grocery supply agreement without supplier consent or an express, clearly triggered clause in the agreement.
Delaying a response to a supplier’s request for a price increase as a tactic to delay decisions can also create risk.
There are further protections around the way suppliers are treated.
Read more in the latest issue here
