A Federal Court finding that Woolworths’ controversial Mind the Gap supplier scheme was not unconscionable will have lasting negative ramifications, according to the food and beverage industry.
The Federal Court today dismissed proceedings brought by the Australian Competition and Consumer Commission (ACCC) against Woolworths that alleged that the retailer had engaged in unconscionable conduct in its dealing with a large number of its suppliers through its Mind the Gap scheme.
The scheme, which was developed in December 2014, sought to reduce a significant half-year gross profit shortfall, with category managers and buyers contacting many suppliers to ask for urgent payments ranging from $4,291 to $1.4 million.
The Federal Court ruled that Woolworths’ requests for these payments were not unconscionable within the meaning of the Australian Consumer Law.
Justice Yates noted the complex trading relationship between Woolworths and its suppliers and that it is always under negotiation and, depending on circumstances, constantly changing.
ACCC Chairman Rod Sims said the ACCC will carefully consider the judgment.
“Pursuing unconscionable conduct remains an important area for the ACCC and we will continue to take enforcement action where appropriate, particularly in relation to supply chain issues,” he said.
“The ACCC took this action because we considered that Woolworths’ behaviour went well beyond hard commercial bargaining and is not consistent with business and community values. If you’re a supplier subject to arbitrary demands, it’s very hard to make future investment decisions in the face of financial uncertainty.”
Australian Food and Grocery Council (AFGC) CEO, Gary Dawson said the Federal Court judgement would have “lasting negative ramifications for the food and grocery sector”.
“It sends a terrible message when a practice that's tantamount to extortion is deemed acceptable and normal business practice.
“The pressure is now on Woolworths to make good on their claim that they have changed and will honour their commitments under the Code of Conduct, which clearly prohibits these sort of retrospective claims under threat of retribution,” Dawson said.
“We commend the ACCC for taking this case on and shining a light on these practices. The ACCC's ongoing enforcement of the Code of Conduct is also important in ensuring it will further drive behavioural change to encourage fair and effective competition in the long term interests of consumers.
“We welcome the commitment from Woolworths’ senior management that practices like retrospective profit gap demands won't be repeated and we remain committed to working with Woolworths to improve trading relationships through their supply chain.”
