One trade association told the review that ‘the fact that arbitration entails the waiving of anonymity by suppliers prevents these suppliers from using it as a tool’. Another trade association noted that there were no arbitrations before the GCA’s appointment, ‘suggesting that the role is critical to the effectiveness of this aspect of [the code]’.

More widely, several respondents mentioned the climate of fear could prevent the GCA from being fully effective in tackling issues, as it may deter suppliers from bringing matters to the attention of the GCA. One respondent suggested that any lack of negotiating power within the grocery supply chain is ‘compounded by a ‘climate of fear’ amongst suppliers and the exclusion of all but direct suppliers from recourse to redress through the GCA’.

As a result, work is underway to establish a governance and assurance framework, while ministers ‘will agree with the GCA an appropriate strategic goal around addressing the climate of fear’.

In addition, the government said it will work with large retailers and suppliers to overcome the reluctance of suppliers to raise potential breaches of the code with the GCA. The government added it will make it clear to large retailers that adverse commercial consequences in response to a supplier reporting a potential breach of the code is ‘totally unacceptable’.

Role of regulator

Despite that, the review found the GCA had been effective in exercising its powers and enforcing the code. It was also found that the order setting a maximum financial penalty at 1% of a retailer’s annual turnover does not require amendment or replacement, despite the fact the GCA has never levied a fine.  

The establishment of the Groceries Code was put in place by the Competition Commission following its market investigation into the supply of groceries in 2006-08. It is intended to remedy adverse effects on competition arising from grocery supply chain practices that disproportionately put suppliers to supermarkets at risk. The code applies to retailers turning over £1bn or more.

To date, the first and only GCA investigation and examined on the practices in use at Tesco in the period leading up to the £263m accounting misstatement uncovered at the retailer in 2014.

The GCA investigation focused on Tesco’s compliance with paragraph five of the code relating to delays in payments and paragraph 12 relating to the prohibition of payments for better positioning or goods unless in relation to promotions. Tesco was found to have breached paragraph five. While there was not enough evidence to find Tesco to have breached paragraph 12, a range of practices relating to payments for better positioning and allocation of shelf space were discovered on which the GCA decided to follow up with a sector-wide consultation in June 2016.

The GCA made five recommendations, requiring Tesco to pay money owed to suppliers in accordance with the agreed terms of payment; not make unilateral deductions; resolve promptly data input errors identified by suppliers; provide transparency and clarity in dealings with suppliers; train finance teams and buyers in the findings from the investigation.

A separate Financial Reporting Council (FRC) investigation into PwC’s auditing of Tesco was partly dropped after concluding there was not a realistic prospect that a disciplinary tribunal would make an 'adverse finding' against the firm.

Meanwhile, the Serious Fraud Office (SFO) brought charges against three former Tesco senior executives. The three defendants, former UK finance director Carl Rogberg, former UK managing director Christopher Bush and former food commercial director John Scouler are now on unconditional bail until the trial starts in September 2017. They pleaded not guilty to the charges in an earlier hearing at Westminster Magistrates Court in September 2016.

Read the Statutory Review of the GCA here.