The Co-operative Group has avoided a fine from the grocery regulator despite being found guilty of “widespread” failings in how it treated its suppliers.
A year-long investigation by the Groceries Code Adjudicator found that the supermarket had dropped suppliers’ products without due notice, levied unfair charges on them and unreasonably varied their supply deals.
Christine Tacon, the adjudicator, ordered the Co-op, which prides itself on its ethical behaviour, to introduce “major changes” to the way in which it engages with suppliers but stopped short of making the group the first to be fined for breaches of the legally binding code of practice, which covers Britain’s 12 largest grocers.
Ms Tacon, 59, said that the Co-op’s actions were “not malicious” and that it had repaid suppliers, which had been charged fees unfairly. The Co-op is Britain’s largest mutually owned business by membership and had sales of £9.5 billion in 2017. Its grocery arm is the UK’s fifth biggest food retailer, with more than 2,500 stores.
The investigation was only the second inquiry by the GCA since it was set up in 2013 and the first since it was given the power to fine supermarkets up to 1 per cent of their annual sales.
Ms Tacon was highly critical of the Co-op’s “serious” mistreatment of suppliers, saying that they had been dropped or seen their sales volume cut with “no notice or short, fixed-notice periods that were not reasonable”.
While many suppliers managed without suffering a significant financial blow, others incurred large costs, including one that suffered a £200,000 hit, she found. Large and small suppliers alike were mishandled, Ms Tacon said, as compliance with industry rules had become a “box-ticking exercise” while the group was trying to recover from a crisis that began in its banking arm in 2013. “Quality control” fees were also applied without justification.
Ms Tacon said that weaknesses in training, policies and processes for the supermarket’s buyers and “poor functioning” of the group’s IT system contributed to the problems.
Jo Whitfield, 50, chief executive of Co-op’s food business, has apologised to suppliers and refunded £650,000 to those affected. She said: “We were focused on rescuing the Co-op and doing right by consumers but we should have also given more thought to the potential impact those planned changes would have on our suppliers. We tried to move more quickly than our systems, processes and people could handle.”
Ms Tacon ordered the Co-op to make changes to its governance, audit and IT systems and to overhaul training of its buyers, and improve the way in which it communicates decisions to remove products with suppliers.
The group will have to pay the £1.3 million cost of the investigation as well as associated costs.
Behind the story
Supermarket buyers who didn’t understand legally binding industry rules. Suppliers dropped without fair warning. Fees charged without explanation. A creaking IT system that left staff unable to do their jobs properly (James Hurley writes).
As the groceries code adjudicator Christine Tacon found, the Co-operative Group’s supply chain failures were “serious” and “widespread”. So why no financial penalty?
Ms Tacon has been in her role, which was created to improve supermarkets’ treatment of suppliers, for almost six years but the Co-op is her first formal investigation since she was given the power to impose fines. She says the Co-op’s transgressions were “not malicious” and that its agreement to repay wronged suppliers and to implement a series of improvements is a much better outcome for the industry than simply issuing a fine that would go to the Treasury.
Yet these outcomes need not be mutually exclusive and a fine might be a good signal to send to errant supermarkets.