Grocery code “not necessarily the answer”: former Kelloggs boss

Former Kellogg chief executive Jean-Yves Heude has warned suppliers not to rely on the grocery industry code of conduct.

The code of conduct, which was declared legally enforceable on 3 March, aims to deliver more contractual certainty in trading relations between suppliers and supermarkets and encourage the better sharing of risk and reduce inappropriate use of market power across the value chain.

It sets out clear obligations to ensure key elements of Grocery Supply Agreements are discussed and agreed up front.

The Australian Food and Grocery Council (AFGC) said the tabling in Parliament is a step towards levelling the playing field for food and grocery suppliers in their transactions with the major supermarkets.

“Signing onto the Code will be a mark of the retailers commitment to fair dealing and to improving the operation of one of the most dynamic and competitive sectors of the economy – the fast moving consumer goods sector,” said AFGC CEO Gary Dawson.

However, Jean-Yves Heude, who ran Kellogg's Australian and New Zealand operations for five years, says the code of conduct is "not necessarily the answer" for suppliers under pressure from Coles and Woolworths to cut prices, fund deeper and more frequent promotions, fill profit gaps and fund supply chain changes, The Australian Financial Review reports.

“They shouldn't rely on this to help them,” said Heude, who now advises food and grocery suppliers. “Coles and Woolworths will use whatever levers they can to deliver their financial targets.”

Mr Heude, a 25-year veteran of the European grocery market, says suppliers need to adapt to a shift in the market from a "win win" model to a European style "balance of power" model, where the major chains exploit their market power to secure better deals from suppliers.

The only way suppliers can level the playing field, he says, is by ensuring their products are unique and relevant to consumers and to adapt their trading strategy to this model.

"If your product is unique and relevant then the retailer needs you as much as you need them," he said. "The minute your product becomes a commodity you're in trouble, price is the only differentiator and on price they will crush you."

"Uniqueness drives loyalty and if consumers are loyal to your brand the retailer can't touch you – loyal consumers will go to another store if they cannot find their preferred product, then the retailer runs the risk of losing the entire basket," Heude said.

"If you are small with very loyal consumers then you have the balance of power."

The Australian Competition and Consumer Commission has promised to use its new powers under the code to enforce its provisions and take legal action for breaches of the code by retailers who sign up.

However, Heude believes that retailers still have scope to demand lower prices and extra discounts and payments from suppliers without crossing the line of unconscionable conduct or breaching the code, as long as they have the right to buy the products they want at the price they want – "which is obviously the case in a liberal economy like Australia."

"Suppliers need to understand what they are facing," he added. "Don't wait for the code to save you, but adapt your business to the balance of power model now."


Send this to a friend