ACCC steps up against Coles

ColesColes will vigorously defend the allegations of the Australian Competition and Consumer Commission (ACCC) in a landmark court case with broad implications for supplier negotiations and competition policy.

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The ACCC allegations of unconscionable conduct by Coles Supermarkets Australia and related entity, Grocery Holdings, will be tested in what is expected to be a 10 week trial in the Federal Court next April.

The case revolves around a retailer program called ‘active retail collaboration’, which required suppliers to pay rebates to secure supply contracts.

Rebates have been part and parcel of supplier negotiations between major retailers and supplier for time immemorial, but the ACCC is set to argue that the program initiated by Coles was unduly onerous and contravened competition law.

Coles devised the active retail collaboration program in a bid to improve earnings by $16 million through supply change improvements.

Around 200 suppliers were recruited to the program, which was investigated by the ACCC as a result of complaints that Coles threatened commercial consequences for suppliers who refused to agree to the additional rebates proposed.

Around 40 witnesses are expected to be called by the ACCC following its investigations, with most of the suppliers subpoenaed to appear after they expressed concern that their evidence may lead to retaliatory action by Coles, such as delisting of products or reduced shelf space allocations in stores.

ACCC steps up

The legal action against Coles is the most significant proceeding by the ACCC since its attempt to intervene in the Metcash takeover of Franklins, but the issues in the current case are around supplier relationships and unconscionable conduct premised on the retailers dominant market position.

While Coles is prepared to defend its actions in the court, the retailer has also developed a public relations strategy which includes the appointment of former Victorian Premier, Jeff Kennett, as an independent arbiter to monitor supplier complaints and concerns that might be lodged under a new supplier charter.

The internal charter follows Coles’ agreement to an industry-wide supplier code of conduct developed in protracted negotiations with the Australian Food and Grocery Council.

Both Coles and Woolworths stopped procrastinating on the Code as the likelihood of the ACCC’s legal action became stronger, and the Federal Minister for Small Business, Bruce Billson, backing ACCC chairman, Rod Sims, plans to more rigorously police competition laws and, if necessary, toughen the laws themselves.

Inside Retail PREMIUM does not imply any untoward actions, but it is worth noting that Billson’s federal electorate includes the home base of Ritchies IGA supermarket chain, which has as its CEO, Fred Harrison, the former chairman of the IGA independent supermarkets nationally.

In his Parliamentary career, Billson has had the opportunity to learn about competition issues and, in government, has stuck to the commitments he made in opposition to ensure small businesses, including grocery and beverage suppliers and retailers, are not unfairly dealt with by the major chains.

Not a publicity stunt With Minister Billson as a Liberal, Coles decided to appoint Kennett as the supplier’s friend, a move the retailer could argue would provide a self imposed safeguard on unfair or unconscionable negotiations.

In Coles’ view, the credibility of the Kennett appointment is boosted by the fact that a complaint by the former politician led to a successful ACCC legal action over claims that bread products manufactured in Ireland and Denmark were fresh baked.

John Durkin, Coles MD, and the executive who developed the active retail collaboration program, has argued that the Kennett appointment is not a public relations stunt.

Kennett claims he agreed to the role after being guaranteed his independence, but despite the assurances of both men, the timing of the appointment indicates it is part of a broader Coles strategy to fend off the ACCC legal action.

Interestingly, those people who know Kennett would suggest it is a risky tactic by Coles, albeit potentially a critical one to limit any damages if the ACCC Federal Court action succeeds, and to resist constraints on its supplier negotiations in the future.

Kennett values his independence and could easily walk from the role in a blaze of adverse publicity for Coles if the retailer doesn’t accept his views on supplier complaints.

Coles’ attempts to underpin its position heading into the court proceedings, and similar moves by Woolworths in bolstering it supplier charters, are understandable, with the ACCC proceedings potentially defining behaviour in supplier negotiations for other retailers, including the discount department store and hardware chains owned by Coles parent company, Wesfarmers, and their Woolworths rivals.

While the ACCC will call suppliers as witnesses in its case against Coles, its lawyer, Mark Moshinsky, QC, told a directions hearing in Melbourne on August 2 that Coles witnesses will include staff, from category managers through to senior management. According to Moshinsky, Coles will argue the program was voluntary and will deny it threatened suppliers.

Coles’ claims it continued trading relationships with 32 suppliers who did not agree to participate in the program.

A trial date has been set for the proceedings for April 13, 2015 with mediation expected to occur in mid-December.

The ACCC is seeking pecuniary penalties, declarations, injunctions and costs.

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