The Australian Competition and Consumer Commission (ACCC) has launched legal proceedings against Coles for allegations it engaged in unconscionable conduct, which included making threats, towards its smaller suppliers.
The ACCC has homed in on Coles' ARC program, a strategy the retailer devised to improve its earnings by obtaining better trading terms from its suppliers, the target of which was to obtain $16 million in ARC rebates from smaller suppliers.
The ACCC said these proceedings arise from its broader investigation into allegations that supermarket suppliers were being treated inappropriately by the major supermarket chains, an investigation that is continuing.
According to the ACCC, Coles sought to improve its earnings through the introduction of ongoing rebates to be paid by its suppliers in connection with the ARC program, which was based on purported benefits to large and small suppliers that Coles asserted had resulted from changes Coles had made to its supply chain.
Coles was ultimately seeking an ongoing ARC rebate in the form of a percentage of the price it paid for the supplier’s grocery products, according to the ACCC.
For smaller suppliers, this was the sum of a percentage which Coles asserted was referable to the value to the supplier of being able to access the Coles supplier portal and, where applicable, a percentage based on the asserted value to the supplier for Coles having changed its ordering patterns to order products in “economic order quantities”.
The ACCC alleges that in relation to 200 of its smaller suppliers, Coles required agreement by the supplier to the rebate within a matter of days.
If these suppliers declined to agree to pay the rebate, Coles personnel were allegedly instructed to escalate the matter to more senior staff, and to threaten commercial consequences if the supplier did not agree.
The ACCC alleges that, in a number of cases, threats were made when suppliers declined to agree to pay the rebate.
The ACCC alleges that Coles has engaged in unconscionable conduct towards 200 of its smaller suppliers by, among other things:
- providing misleading information to suppliers about the savings and value to them from the changes Coles had made;
- using undue influence and unfair tactics against suppliers to obtain payments of the rebate;
- taking advantage of its superior bargaining position by, amongst other things, seeking payments when it had no legitimate basis for seeking them; and
- requiring those suppliers to agree to the ongoing ARC rebate without providing them with sufficient time to assess the value, if any, of the purported benefits of the ARC program to their small business.
“The conduct of Coles alleged by the ACCC in these proceedings was capable of causing significant detriment to small suppliers’ businesses. This could have resulted in these businesses becoming less able to plan and less able to innovate in the market, with resulting reduced economic efficiency and consumer detriment,” ACCC chairman Rod Sims said.
“The ACCC alleges that Coles used undue pressure and unfair tactics in negotiating with suppliers, provided misleading information and took advantage of its superior bargaining position, so that its overall conduct was in all the circumstances unconscionable. If this conduct is established in court, the ACCC expects that the community will share the ACCC’s view that business should not be conducted in this way in Australia.”
The Australian Food and Grocery Council (AFGC) said it welcomed today's ACCC announcement.
AFGC CEO Gary Dawson said the proceedings involve very serious matters in relation to retailer dealings with food and grocery suppliers that have been hanging over the industry for years.
“It is important that these allegations be tested in court because they go to the heart of whether we have a properly functioning food and grocery market in Australia under the current market power imbalance,” said Dawson.
“Consumer interest is best served by a properly functioning competitive market and the ACCC has a key role in ensuring fair and effective competition across the supply chain.”
Coles had yet to issue a statement at the time of publishing.
The matter is listed for a directions hearing in the Federal Court of Australia in Melbourne on 6 June.
