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Update on New Grocery Regulations
On 27 January 2016, the Minister for Jobs, Enterprise and Innovation (the “Minister”) signed into law the Consumer Protection Act 2007 (Grocery Goods Undertakings) Regulations 2016 (the “Regulations”). The Regulations will come into effect on 30 April 2016.
The introduction of the Regulations follows many years of concern about the fairness of contractual arrangements between large retailers and wholesalers and their suppliers, including those in the dairy and meat industry. The outcome for the grocery sector is the introduction of a statutory regime backed up by public enforcement powers and criminal sanctions, despite historic calls by industry for a voluntary ‘code’ and historic calls by the Irish competition authority, now known as the Competition and Consumer Protection Commission (“CCPC”), for a supplier-led private enforcement regime.
The Regulations impose new obligations on retailers or wholesalers who, either alone or as part of a group, have an annual worldwide turnover in excess of €50 million. The Regulations apply to these parties’ arrangements with suppliers for the purchase of “grocery goods”. Failure to comply can result in criminal prosecution including the imposition of fines and terms of imprisonment for relevant directors and officers of the companies concerned.
The Minister also published draft guidelines aimed at providing practical guidance as regards the operation of the Regulations. The Minister has invited stakeholders to comment on the content of these guidelines before close of business on Monday 29 February 2016.
Need to Know
Who and What is Likely to be Directly Affected?
The Regulations impose obligations on “relevant grocery goods undertakings” (“GGUs”) in their relationships with suppliers. GGUs are retailers or wholesalers of “grocery goods” (excluding food service / catering businesses) who, either alone or as part of a group, have an annual worldwide turnover in excess of €50 million. The number of grocery businesses operating in Ireland who could be GGUs to whom the Regulations apply is wide. This is because the adoption of a worldwide as opposed to an Ireland-wide turnover test means that the Regulations will apply to any small Irish “grocery goods” retailer or wholesaler that is owned by a larger business in Ireland or abroad. This is in contrast to the position in the UK, where the Groceries Supply Code of Practice currently applies to ten “designated retailers” only and has been structured so that it will only apply to retailers with a UK-wide turnover in excess of £1 billion from groceries sales.
The Regulations define “grocery goods” so as to cover all food and drink (including alcohol) products. While the Minister was free to include other products in the Regulations, including cleaning products, toiletries and garden plants, these were not included following consultation.
To What Contractual Relationships Will the Regulations Apply?
The Regulations will apply to agreements for the supply of “grocery goods” between GGUs and suppliers which:
- are entered into on or after 30 April 2016; or
- were entered into before 30 April 2016 but which are renewed on or after that date.
What are the Practical Implications for Those Affected?
- The Regulations impose new obligations on GGUs to do the following in particular:
(a) Have a Written Signed Contract in place: “Grocery goods” contracts must be recorded in writing using clear understandable language and must be signed and retained by each party.
(b) Force Majeure: Parties to “grocery goods” contracts shall not be liable for delay or failure to perform which results from circumstances beyond the reasonable control of that party.
(c) Unilateral Variation: GGUs may not vary, terminate or renew a “grocery goods” contract unless this is expressly provided for and the relevant contract provides for a reasonable notice period.
(d) Third Party Procurement: GGUs may not require a supplier to obtain goods and services from a third party from whom the GGU receives a payment unless those goods or services provide better value or the supplier’s current provider is not meeting reasonable quality standards.
(e) Forecasts: GGUs shall, on the request of a supplier and in consultation with that that supplier, provide a forecast of the “grocery goods” likely to be required in respect of a given future period.
(f) Payment: Unless expressly provided for by written contract, GGUs shall pay suppliers within the later of: (i) 30 days of the date of receipt of any invoice; and (ii) the date of delivery.
(g) Restrictions on Financial Conditions: Subject to a number of exceptions, a GGU may not compel a supplier to pay for stocking; promotions; marketing; retention, increased allocation or positioning; advertising / display; wastage; or shrinkage.
(h) New Compliance Structures: Following commencement of the Regulations, GGUs must:
- as soon as practicable but, in any case, by 30 July 2016, designate and train appropriate members of staff to be responsible for compliance with the Regulations;
- nominate a liaison officer to liaise with the CCPC in relation to the Regulations;
- submit an annual compliance report to the CCPC by 31 March each year; and
- maintain, for a period of six years after the end of each financial year to which they relate, records of certain documents and information in relation to the procurement of “grocery goods”.
What Enforcement Powers and Sanctions are Included in the Regulations?
Breach of the Regulations (including failure to comply with any contravention notice issued by the CCPC under the Consumer Protection Act 2007) may result in prosecution, either by summary or indictment with potential penalties ranging from:
- on a first summary conviction, a fine of up to €3,000 or six months imprisonment or both; to
- on a second or subsequent conviction on indictment, a fine of up to €100,000 or two years imprisonment or both.
The CCPC has powers to investigate compliance with the Regulations and to ‘name and shame’ offenders.
The Act provides a legal basis for civil damages actions for breach of the Regulations.
How Should Your Business Prepare?
- GGUs and suppliers should determine whether their current arrangements comply with the Regulations and consider whether any necessary amendments raise commercial challenges.
- GGUs (and/or suppliers to GGUS who take the lead in contract drafting) should prepare template contracts in compliance with the Regulations.
- GGUs should ensure that all arrangements with suppliers which are renewed after 30 April 2016 are recorded in writing, signed by both parties and in compliance with the Regulations.
- GGUs should implement the compliance requirements, including nominating a liaison officer and confirming their details to the CCPC as soon as practicable thereafter, and establishing procedures for preparation of an annual compliance report.
- GGUs should update their data retention procedures to take account of the Regulations.
- GGUs should organise training on the Regulations for current and new staff members.
Draft guidelines have been published by the Minister to provide practical guidance as regards the operation of the Regulations. The Minister has invited stakeholders to comment on the content of these guidelines before close of business on Monday 29 February 2016.