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We believe stronger supplier relationships help retailers lead on growth, innovation, end-to-end cost and cash management over the long term while metrics governing these should form a key part of an ESG framework. Grocery Code Adjudicator's (GCA) annual reports give us independent, interesting insights from thousands of suppliers to integrate into investors' frameworks in our view.

The GCA was established in 2013 by an act of parliament to ensure supermarkets treat suppliers lawfully and fairly under the Groceries Supply Code of Practice (GSCOP). All major grocers follow the code and are regulated by the GCA which can fine up to 1% of UK turnover for breaches. GCA's annual reports provide unique insights into thousands of suppliers' assessment of retailers.

The latest annual report for FY20-21 had c2,600 responses to the survey in total with c2,400 direct supplier responses (up 60% on 2020). The report continues to paint a picture of improved code compliance by retailers over the past seven years, but relationships could get tougher in the 2H'2021 as the cost inflation in the sector gathers pace leading to renegotiation of prices.

Firstly, with the increase in cost inflation from ingredients, packaging to transportation costs as well labour costs, suppliers and retailers are likely to face robust debates on the level of pass through the former is able to achieve. Grocery retailers are likely to continue to push back on the price increases as they will be determined to keep the price gaps.

Secondly, we also see product shortages in the industry in the coming months. In those situations where product supply is limited, we expect suppliers to prioritise the retailers where there are longer term, strategic relationships in place. Typically, these are likely at the majorÌýretailers. That could also create some tension in the supplier/retailer conversations over the coming months.

While in the previous annual reports we had greater disclosure of 14 key code related issues suppliers cited, this annual report limits the issues to the top three issues only. Incidence of these issues has fallen considerably in 2021 however.

1. No compensation for forecasting errors by retailers
2. Delay in payments: likely meaning that there remains a greater focus on payables days, likely capping scope for working capital improvement
3. Obligation to contribute to marketing costs - likely meaning that any significant demands from retailers are likely to be escalated to the GCA.