Retail supply
Case 01Supply agreement
A supplier negotiating terms with a national retailer
- Client
- A chilled food manufacturer supplying a national specialty retail chain.
- Challenge
- Our draft supply agreement came back from the retailer with changes to liability, recalls, funding and termination, while the two businesses were still settling the commercial figures.
- What we did
- Showed that the new recall clause let the retailer claim lost profits, even though the agreement generally excluded those claims, and recommended asking for it to be removed.
- Flagged that the recall clause now applied to any recall, including a voluntary one where nothing was wrong with the product.
- Flagged that the liability cap no longer covered product defect claims, so the supplier's liability for defects had no limit.
- Found two conflicting definitions of the cost base used for every rebate and funding payment, and showed how the retailer's version could have the supplier repay more than it was paid for the same stock.
- Recommended restoring the rule that only the higher of two overlapping funding amounts is paid.
- Advised the supplier to give its storage and handling instructions to the retailer in writing, because the supplier's indemnity to the retailer is reduced if the retailer does not follow them.
- Explained that the right to end the agreement early had been removed, so the supplier was committed for the whole initial term, and recommended keeping that term to 12 months.
- Outcome
- The retailer accepted the general exclusion of lost profits, a liability cap and an indemnity limited to direct loss. For the remaining points, the supplier went into its commercial meeting with our recommended position on each.
- What this shows
- In a retail supply agreement, the definitions and exceptions decide how much the supplier can end up paying back to the retailer.
