Retailers are moving upstream: What the food and grocery code of conduct means for your factory floor

Australia’s supermarket duopoly is now legally required to treat suppliers differently, with operational consequences extending well beyond the negotiating table. The ACCC supermarket inquiry found Coles and Woolworths to be among the most profitable grocery retailers in the world, with product margins rising for five consecutive financial years¹. On 1 April 2026, the transitional period for the Food and Grocery Code of Conduct closed, bringing every grocery supply agreement in the country under its full requirements. For fast-moving consumer goods (FMCG) and food manufacturers, operational excellence is no longer a differentiator; it is now the baseline condition for maintaining a listing on the shelf.

The bar has been raised, and now it’s the law

The code stopped being voluntary with the amendments that took effect on 1 April 2025, but the twelve months that followed still acted as a grace period for agreements signed before that date. That grace period closed on 1 April 2026, when every grocery supply agreement in Australia, regardless of when it was signed, came under the code’s full requirements². The shift converts supplier operational performance from a commercial preference into a compliance obligation with legal weight behind it. Retailers can no longer treat supplier assessment as a soft negotiating lever, because regulators now expect them to apply it consistently. For a supplier, this changes what a range review or a supplier performance scorecard represents. It is no longer a retailer preference exercise. It has become evidence within a compliance framework, and the operational data behind DIFOT (Delivery In Full, On Time), fill rate, and quality performance is what determines where a supplier lands.

Why retailers are now auditing the factory floor

The ACCC supermarket inquiry did more than flag high margins. It also found a meaningful imbalance of bargaining power between Coles and Woolworths and part of their supplier base, exercised through trading terms and internal business processes (ACCC, 2025). That finding helps explain why retailers have shifted from negotiating favourable terms toward requiring proof of operational capability before terms are even discussed. A supplier relationship management program now routinely includes site visits, capability audits, and supplier performance management metrics that track behaviour over months rather than a single delivery outcome. This is where value stream mapping (VSM) earns its place in the conversation. A scorecard measures outcomes such as on-time delivery and cost consistency, but those outcomes are produced somewhere specific: on a production line, in a warehouse, inside a planning cycle. Suppliers who cannot trace their own product and information flow end to end are negotiating from a position they cannot verify, and retailers now have every incentive to test that gap.

What separates the operations that survive a range review

Suppliers that pass a range review share operational traits that have little to do with pricing. Their demand forecasting is disciplined enough that a promotional spike or a range change does not produce a stockout in one direction or a slow-moving inventory problem in the other. Their sales and operations planning process connects commercial forecasts to production capacity, rather than treating the two as separate conversations that meet only when a problem forces them together. Inventory optimisation, done properly, protects fill rate while keeping working capital under control, and practices such as total productive maintenance (TPM) reduce the unplanned downtime that turns an achievable delivery date into a missed one. A retailer’s supply chain optimisation team is trained to look for this discipline, because supply chain resilience at the retailer’s end depends on whether its supplier base can absorb variability without passing disruption downstream to the shelf.

Value stream analysis (VSA), standard work, and autonomous quality: the supplier’s operational playbook

Three KAIZEN™ methodologies map directly onto what a modern scorecard exposes. VSA addresses the root problem behind most failed supplier redesigns: changes made without a factual picture of the current flow tend to fix symptoms rather than the systemic causes of lead time, inventory, and waste. VSA maps the complete current-state flow of materials and information, quantifies waste at each step, and builds a future-state design targeted at the points of greatest opportunity. Standard work addresses what an audit or scorecard detects: output that varies because different operators perform the same task differently, which makes it impossible to tell normal performance from abnormal performance or to hold onto a gain once it has been made. Standard work documents the current best method for a task, combining takt time, work sequence, and standard inventory into something every operator can be trained against and every auditor can verify. Autonomous quality then shifts inspection to the point of production, training operators to understand their own quality standards and control the parameters that create defects before they happen, lifting first-pass yield and removing rework costs a supplier’s margin can no longer absorb.

Where to start before the next scorecard arrives

Suppliers do not need to solve everything before the next audit. They need to start where the visibility gap is largest, and for most FMCG and food manufacturers, that is the shop floor itself. A structured gemba walk, conducted regularly rather than as a one-off event, surfaces the workarounds and small deviations that a range review will eventually find anyway. Daily management routines, built around visual boards and short team check-ins, catch abnormalities the same shift they occur rather than the month an auditor visits. 5S creates the basic organisation an audit can verify, PDCA (Plan, Do, Check, Act) gives teams a disciplined way to test fixes before scaling them, and overall equipment effectiveness (OEE) turns equipment performance into a number a supplier can track and improve rather than discover only after a breakdown.

Retailers moving upstream are, in effect, asking suppliers to build the same discipline into every shift that KAIZEN™ has spent decades embedding on factory floors worldwide. A scorecard, a range review, or an audit under the Food and Grocery Code of Conduct tests whether continuous improvement is built into daily operations deeply enough that a good number holds up under repeated scrutiny, without heroics. Kaizen Institute has spent over four decades helping FMCG and food manufacturers build exactly this kind of lean supply chain, one where value stream analysis exposes where flow breaks down, standard work makes performance predictable across every shift, and Autonomous Quality protects margin before a defect ever reaches a retailer’s dock. The suppliers who treat this moment as an operational reset will be the ones still holding their shelf space when the next scorecard arrives.

This shift affects both sides of the supply agreement. Kaizen Institute’s manufacturing operations consulting and CPG and consumer products consulting support manufacturers in building the value stream discipline, standard work, and autonomous quality practices this article has described, while the retail consulting helps retailers align scorecard design with what actually determines supply chain resilience. Suppliers and retailers who build this discipline now, rather than waiting for the next audit to expose the gap, will be the ones still doing business together when the code’s next review comes around.

References

1. Australian Competition and Consumer Commission (ACCC), 2025:Supermarkets Inquiry Final Report. ↩︎
2. Australian Competition and Consumer Commission (ACCC), 2026:About the Food and Grocery Code of Conduct. ↩︎