The Minister for Jobs, Enterprise and Innovation has published draft Regulations which, if adopted in their current form, will regulate commercial dealings between suppliers and certain operators in the grocery sector.
The Regulations will have significant implications for commercial relations where the wholesalers or retailers of grocery goods involved have worldwide turnover exceeds €50 million. The definition of "grocery goods" in the Regulations is broadly drawn and encompasses any food or drink intended to be sold for human consumption, including intoxicating liquors. However, the Regulations will not apply to food or drink served or supplied on the premises of a grocery wholesaler/retailer in the course of providing catering, restaurant, take-away or any similar hospitality services.
Key Features of the Draft Regulations if adopted:
Application: The Regulations will apply to contracts entered into or renewed on or after the date on which the Regulations come into operation and cannot be waived by either party.
General Principles: The Regulations impose an overarching obligation to conduct trading relationships in good faith and in a fair, open and transparent manner.
Contracts: Grocery goods contracts must be in writing, signed by both parties and expressed in plain, intelligible language.
Unilateral Actions: Grocery goods contracts cannot be unilaterally terminated, varied or renewed by a wholesaler or retailer unless this is expressly provided for in the contract and the contract specifies a reasonable period of written notice to be given to the wholesaler or retailer.
Force Majeure: Grocery goods contracts must provide that a party will not be liable for delays or failure in the performance of the contract resulting from circumstances beyond its reasonable control.
Supply Forecasts: The Regulations oblige wholesalers/retailers to prepare forecasts of the supply of grocery goods from a supplier in good faith and to communicate the basis on which the forecast has been prepared to the supplier. A supplier can also request that it be consulted on the forecast/its basis.
Payments for Purchase of Grocery Goods: Payment cannot be sought from a supplier for the purchase of grocery goods for resale by a wholesaler/retailer. This is subject to an exception where the payment is based on an objective and reasonable estimate of the cost of stocking the goods and the goods have not been stocked in an individual store in the previous year or, in the case of multiples, have not been stocked in at least 25% of stores in the previous year.
Payment Terms: Contracts must specify the manner and timeframe of payments by wholesalers/retailers to suppliers. In the absence of express provisions, payment must be made to a supplier within 30 days of the date of receipt of the invoice or, where the date of receipt of the invoice is uncertain or the invoice is received before delivery of the goods, within 30 days of the date of delivery.
Promotions: A supplier cannot be obliged to participate in or make payment in respect of a promotion unless there are terms and conditions in the contract which oblige a specified period of written notice to be given to the supplier in respect of the duration of the promotion, the quantity of goods to be ordered and the basis for the quantity. Any payment sought must also be based on an objective and reasonable estimate of the cost of the promotion to the wholesaler/retailer.
Payments for Marketing/ Shelf Space: The Regulations prohibit payment being sought from a supplier for marketing costs or for the retention, increased allocation or better positioning of shelf space, unless payment is expressly provided for in the contract. In the case of marketing costs, the payment sought must also be based on an objective and reasonable estimate of the costs.
Payments for Advertising: Wholesalers/retailers are prohibited from compelling suppliers to pay for the advertising or display of their goods in the premises of the wholesaler/retailer.
Wastage/Shrinkage: Payment cannot be sought from a supplier for wastage or shrinkage unless this is expressly provided for in the contract and the payment is based on an objective and reasonable estimate of the cost to the wholesaler/retailer. In the case of wastage, payment can only be sought where the wastage arises from the negligence or fault of the supplier.
Compliance: Members of staff have to be trained to be responsible for compliance with the Regulations and for disseminating information on the Regulations to other staff. One staff member has to be designated as the contact person for dealings with the CCPC. A compliance report has to be submitted to the CCPC within three months after the end of each calendar year detailing the wholesaler/retailer's compliance with the Regulations (including details of breaches).
The Regulations are similar in many respects to the Groceries Supply Code of Practice which regulates relations between supermarkets and suppliers in the UK. The UK Groceries Code Adjudicator recently announced that she was launching her first investigation into breaches of the Code and also welcomed the tabling of legislation before the UK Parliament which would allow her to impose a fine of up to 1% of turnover on offending retailers. While it is uncertain how the Irish approach will compare, it is clear that the Regulations, if adopted in their current form, will oblige grocery wholesalers/retailers to implement substantial additional compliance mechanisms and to place their commercial relations with suppliers under increased scrutiny. Nonetheless, there are important procedural and substantive differences between the Irish and UK regimes not least because of Irish constitutional law.
For further information please contact a member of our EU, Competition & Procurement Team.