The Co-op is facing an investigation by the grocery industry watchdog into the treatment of suppliers by its supermarket chain, which could lead to a multimillion-pound fine.
The second formal investigation to date by the Groceries Code Adjudicator will be the first in which it can levy penalties of up to 1% of turnover.
The adjudicator, Christine Tacon, said she had “reasonable suspicion” the Co-op had breached a legally binding industry code of practice, overseen by the GCA, designed to ensure suppliers are treated fairly.
In a statement, the Co-Op apologised and admitted it had “fallen short”. The company said it had repaid £500,000 to 110 suppliers in relation to quality control and “benchmarking charges” – checking goods against other retailers’ products – and was retraining staff to ensure they comply with the code of practice.
The Co-op’s food business has a turnover of more than £7bn, which means the group could potentially face a fine of more than £70m, although Tacon has previously said she prefers to push for change in industry practice rather than levy penalties.
Her investigation will consider the extent, scale and impact of practices that may have resulted in suppliers’ products being delisted – removed from stores – with either short notice or none at all. The investigation will cover the period between summer 2016 and summer 2017.
Tacon will also look at whether the Co-Op introduced “charges without reasonable notice” on suppliers. The charges related to checking the quality of goods with little notice.
The adjudicator called on suppliers to come forward with evidence. “It is now important that suppliers provide me with information to help my investigation … All information I receive will be treated with complete confidentiality,” she said.
The Co-op said: “We acknowledge that we have fallen short and have been discussing the two issues raised with the GCA for some months. We have already taken decisive steps in line with our commitment to ensure the fair treatment of all of our suppliers.”
The company said it was adjusting its systems and processes, and writing to all of its 1,500 direct suppliers to seek information on any delisting decisions they believe may have been taken without appropriate consultation.
“A small number of suppliers have raised concerns, which we are working through with them,” the Co-op said.
Jo Whitfield, the chief executive of Co-op Food, said: “We care deeply about our relationships with our suppliers and we are very sorry that in these two areas, we have failed to live up to our usual high standards.
“We are already addressing the issues with the GCA and our suppliers, and we hope the investigation will help bring to light any additional cases, so that we can put these right as quickly as possible.”
Tacon has previously sanctioned a number of companies, but has only launched one other formal investigation.
Two years ago, Tesco was forced to pay £1m towards the cost of a GCA investigation that found the supermarket had deliberately delayed payments to suppliers to boost profit. At the time, Tacon did not have the power to levy a fine on Tesco.