United States: New Interaction Matrix For Retailers And Food Product Suppliers Elaborated

Last Updated: July 19 2016
Article by Marat Mouradov

On 3 July 2016 Federal Law No. 273-FZ1 was adopted, which requires retailers and food product suppliers to review existing contractual relationships and to choose new legal forms for their interaction. The major amendments made to the Retail Law2 and the Russian Administrative Offenses Code concern the following essential aspects:

  • The amount of the maximum total consideration payable by suppliers to retailers (so-called "retrobonuses") has been reduced from 10% to 5% of the price of the food products purchased. The maximum total consideration now covers not only (а) consideration in connection with purchase of a certain quantity of food products, but also (b) a fee for product promotion services, (c) logistical services, (d) services to prepare, process and package goods and (e) other similar services. VAT and excise are not included when calculating the total amount of consideration. Suppliers are prohibited to pay retail chains other types of consideration not contemplated by the Retail Law. Product promotion services, services to prepare, process and package goods and other similar services should be documented in a separate contract.
  • A definition of "product promotion services" provided to suppliers by retail chains has been introduced. Such services include: advertising food products, displaying them on shelves, studying consumer demand, preparing reports containing information about the food products, and other activities aimed at promoting food products.
  • Time limits on deferred payment for food products by retailers are now set from the day the products are actually received (and not from the date of acceptance as was previously the case) and have been shortened: the payment deadline for perishable products (with a shelf life of less than 10 days) has been reduced from 10 to 8 business days, while the payment deadline for products with a shelf life of 10 - 30 days has been reduced from 30 to 25 calendar days; the payment deadline for products with a shelf life of more than 30 days and for alcoholic beverages made in Russia has been reduced from 45 to 40 calendar days.
  • Special prohibitions for retail chains and food product suppliers have been clarified and detailed, including prohibitions on: (а) charging or paying a fee for supplying food products to retail facilities ("entry fee"); (b) charging or paying a fee for changing the food product range; (c) reimbursing retailers' expenses connected with loss or damage of food products after transfer to them of ownership to such products; (d) creating discriminatory conditions; (e) imposing a number of prohibited contractual terms on the contracting party; (f) entering into contracts for retail activity under which the product is transferred for distribution to a third party (retailer) without it acquiring ownership of the product, including contracts of commission, delegation, agency or mixed contracts containing elements of one or all of those contracts, save for intragroup transactions and/or transactions within a retail chain, etc. The elements of administrative offenses have been updated and added to accordingly.
  • The mandatory provision by retailers and suppliers of food products of access to information on (i) the terms for selecting contracting parties to enter into food product supply contracts, (ii) the material terms of the contract, and (iii) the quality and safety of the food products from now on should be done only by posting that information on a website. It is now no longer possible to send that information upon request. Thus, retailers and suppliers face the problem of the balance between the disclosure requirement on the one hand, and, on the other hand, the public availability of such information as one of the signs of "collective dominance" and an element of collusion.
  • The competence of the Federal Antimonopoly Service has been formally confirmed to control (with the right to issue the relevant "prescriptions") compliance by retailers and suppliers with the rules, restrictions and prohibitions contemplated by Article 9 of the Retail Law which apply to the entry into and performance of food product supply contracts. This area includes, inter alia: requirements to provide access to information, a restriction on the maximum total amount of consideration, a prohibition on including terms on product promotion services in a supply contract, a restriction on the maximum deferred payment terms, etc.

The amendments to the Retail Law enter into force on 15 July 2016. Supply contracts entered into before that date should be brought into compliance with the new requirements by 1 January 2017, after which the terms of contracts contravening the amended Law on Trade will lose their validity.

Thus, retailers and suppliers have less than six months to review and revise their entire system of contracts, overhaul their sales and accounting policies, as well as other documents and accounting, management and warehouse ledgers that may be affected by the amendments.

Footnotes

1 Federal Law No. 273-FZ of 3 July 2016 on Amendments to the Federal Law on the Fundamentals of State Regulation of Trade in the Russian Federation and the Russian Federation Administrative Offenses Code.

2 Federal Law No. 381-FZ of 28 December 2009 on the Fundamentals of State Regulation of Trade in the Russian Federation.

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