Retail chains will not be allowed to fine suppliers for disrupting orders

This rule should apply only to those cases where the date of fulfillment of obligations was not previously agreed upon. During the pandemic, retail chains and their partners have already agreed on a moratorium on fines, it was supported only by the largest players. However, the circumstances of 2022 are not inferior in importance to the coronavirus restrictions.

In the spring of 2022, deputy Sergei Lisovsky wrote to the Ministry of Industry and Trade that retailers fine suppliers by 20%, 50%, and sometimes 100% of the cost of products (for example, in the case of promotions or discount campaigns). Now the situation is no better - penalties can reach tens of millions of rubles, and often several percent of the proceeds, one of the sources among the suppliers told Izvestia.

The executive director of Rusprodsoyuz, Dmitry Vostrikov, said that he supported the legislative consolidation of the obligation to execute only the order confirmed by the supplier from the retailer, and the inadmissibility of issuing penalties if there is no acceptance for the delivery of a consignment of goods. In his opinion, this will help to introduce long-term supply planning, recommended by the decision of the commission on compliance with the code of good faith in trade. 

In addition, this will discipline the market and remove the risks of sharp fluctuations in the volume of orders from chains, imposing huge fines for non-fulfillment of these orders by suppliers. “For some networks, such placement of unscheduled orders and imposition of fines for their non-fulfillment has become an additional source of income,” says Vostrikov.

The practice of the absence in the contract of the possibility of agreeing on the quantity and other parameters by the supplier and confirming the order was recognized as unfair by the CDP commission back in 2018, the expert recalled. Today, according to him, the problem has become especially urgent. “The economic crisis does not allow suppliers to direct working capital, which is so necessary for the uninterrupted production of products, to pay unreasonable and essentially illegal fines,” he stressed.

Now the supplier is obliged to supply any volume of goods requested by the network (even if it is an annual volume), regardless of whether he confirmed the order received from the network or not. Otherwise, the supplier will be fined. “This leads to abuses on the part of networks that use this practice solely as a means of obtaining additional profit through penalties from manufacturers or as a tool for imposing unfavorable clauses of the contract,” Vostrikov noted.

According to him, in fact, this leads to the ruin of food enterprises, due to the lack of predictability of financial results under the contract. The expert believes that in the medium term this will lead to a reduction in the assortment on the shelf, a decrease in competition, monopolization and an inevitable increase in prices. “For some chains, the fines are higher than the average profitability in the food industry, so there are risks of manufacturers going bankrupt when working with retail chains,” Vostrikov said.  

Chairman of the Presidium of the Association of Retail Companies (AKORT) Igor Karavaev believes that the moratorium on fines as a temporary tool in the face of the risk of interruption in the continuity of the supply of a number of goods really supported suppliers. Moreover, a number of ACORT member networks have voluntarily extended its validity in 2022. At the same time, he believes that the regulatory fixation of the moratorium on an ongoing basis will lead to an imbalance in the market, both on the side of the retail link and in the supply chain. The experience of the moratorium on fines for suppliers during the pandemic and in the spring of 2022 led to a significant decrease in the service level of suppliers (service level) - up to 60% in large networks.

According to Karavaev, the mechanism of penalties for failure to comply with contractual obligations is of an important disciplining nature — it makes it possible to ensure timely fulfillment of supply obligations in the amount necessary for consumers. “The largest retail chains always consider individual objective cases of the impossibility of fulfilling part of the obligations on the part of bona fide suppliers, without applying penalties and forfeits,” he said. “In such cases, bona fide suppliers should make every effort to minimize the risks and consequences, and networks should make an objective review of the documents and information provided by suppliers, indicating that it is impossible to partially fulfill the order.”