The time is ripe for suppliers to negotiate with the major supermarkets

Since the Food and Grocery Code of Conduct (FGCC) became operative on 17 June 2015, suppliers have been presented with new or ‘amended’ terms and conditions from Aldi and Woolworths which both appear to have been presented on a ‘take it or leave it’ basis.

On 24 September 2015 the ACCC announced that it has concerns as to the manner in which some retailers, in particular Woolworths and Aldi, were presenting new Grocery Supply Agreements (GSAs), which might give the impression that the supplier is not able to negotiate the terms of the GSA.

In a previous post, we encouraged retailers to take the opportunity to negotiate on the new GSAs. The opportunity is only improved by the ACCC focus on the conduct of Aldi and Woolworths. We have reviewed the terms and conditions and have identified a number of issues which should be the focus of the negotiations.

Where the opportunities lie

FGCC requires that the supplier be no worse off under the new Grocery Supply Agreement than under their existing supply arrangements. This means that you do not have to agree to the same terms and conditions and particularly the following:

  • The FGCC has prohibited certain terms and conditions(such as unreasonable charges or deductions from payments), many of which may be in your existing trading terms. These terms are prohibited unless they are included in the terms and conditions to which you agree.
  • Consider carefully any indemnity you provide under the terms and conditions and compare it to what your insurance covers. Any inconsistency will be out of your pocket. Any indemnity should be reduced by the amount that the retailer contributed to the loss or damage.
  • Watch out for unilateral and retrospective amendments. A right to unilateral amendment means the retailer can change the terms of your contract at any time without your consent (although in some circumstances with some notice). The ability to make retrospective changes allows the retailer to change the terms of the contract as if that term had existed in the past. A retrospective change could result in a substantial liability for past conduct.
  • Consider the notice periods allowed in the terms and conditions. Are they long enough for you to cancel or change your supply arrangements without significant cost?
  • Protect your intellectual property. Trademarks and brand names are important but there is other IP which may be more crucial to your business. If you manufacture to a recipe, make sure that recipe is protected as your intellectual property and cannot be used or disclosed by the retailer.
  • Make sure you understand who you deal with at the retailer and what authority they have to make any changes to the agreement, the purchase orders or any other trading terms. Don’t assume that because your buyer agrees to something, that the GSA will be amended. Usually amendments will need to be made in writing.

The issue of new terms and conditions in compliance with the FGCC is a rare opportunity to secure an improvement in trading terms with the major supermarkets. Don’t just accept what is presented by the major supermarkets, identify what is business critical and focus your negotiations on those issues. There is scope for negotiation – don’t let the opportunity to improve your position pass you by.

Rebecca Halkett is the Head of Kain Lawyers’ Food & Agribusiness Group. She is a competition and consumer law specialist, has acted for and against the ACCC and is accredited as a practitioner of the Food & Grocery Code of Conduct.