Docket breach causes duopoly headache
The Australian Competition and Consumer Commission (ACCC) has instituted proceedings in the Federal Court against Coles and Woolworths alleging the two supermarket chains have reneged on an undertaking to discontinue deep discounts on fuel dockets.
The retailers apparently had legal advice on how they could continue to use fuel discounts without breaking court enforceable undertakings struck with the ACCC on December 6.
The ACCC is alleging in the court proceedings that Woolworths’ current offer of a bundled discount of 8 cents per litre (4 + 4 cents) is a breach of its undertaking because the discount is only available to a customer who has made a qualifying supermarket purchase.
The ACCC also alleges that Coles is offering and allowing a bundled discount of 14 cents per litre (10 + 4 cents), breaching the undertaking, as the discount of 14 cents per litre is only available to a customer who has made a qualifying supermarket purchase and because it exceeds 4 cents per litre.
Irrespective of the legal niceties of the undertaking signed just two months ago, both retailers have certainly tested the spirit of their agreement with the ACCC and forced the regulator to initiate the court proceedings.
The supermarkets claim they had verbal approval from senior staff at the ACCC in January to the effect that their bundling promotion campaigns would not breach the undertakings.
Rod Sims, ACCC chairman, said the regulator takes alleged breaches of undertakings extremely seriously as they were used as an alternative to court enforcement action.
Sims said the ACCC had been concerned that fuel savings offers could have longer term effects on the structure of the retail fuel markets and the short term effect of increasing general pump prices.
He said the ACCC is concerned that the bundled discount offerings in excess of 4 cents per litre are contrary to the terms of the undertakings.
Flow on effects
The actions of Coles and Woolworths in skirting around the agreement have raised questions about the value of the grocery code of conduct which was set late last year after protracted negotiations with the Australian Food and Grocery Council (AFGC).
It certainly seems to be a foolish move by the supermarket chains to antagonise the ACCC on the fuel dockets when the regulator has not completed its investigation of grocery supplier relationships and has yet to judge whether or not the voluntary code of practice signed by Coles and Woolworths with the AFGC is adequate protection for suppliers.
The Code seeks to regulate supply terms and practices between major retailers and grocery suppliers, providing greater transparency and certainty for grocery suppliers on trading terms and improved dispute resolution processes.
The code had a long gestation period, with Coles and Woolworths continuing to argue it should also be signed by Costco, Metcash IGA, and Aldi.
Sims welcomed the code of practice, but the ACCC is yet to determine any action it will take as a result of its investigation into potential unconscionable conduct in dealing with suppliers and whether the major supermarket chains misused their market power by discriminating in favour or their own house brand products.
The code of conduct is not yet operating as it only comes into effect once regulations have been promulgated under the Competition and Consumer Act 2010. The ACCC may push for changes to the code based on the findings of its investigation of supplier relationships with the supermarket chains.
In the fuel dockets proceedings, the ACCC is seeking declarations, costs and other orders.
In separate proceedings, Woolworths has sought a declaration in relation to a proposed future fuel discount offer, which the ACCC also considers would breach Woolworths’ undertaking.
Directions hearings for the ACCC action against Coles and Woolworths are set for April 3 in Sydney’s Federal Court.
Supermarkets Code of Practice
The Code imposes the following key restrictions on grocery supply terms and practices:
Retailers cannot vary grocery supply agreements unilaterally or retrospectively (except where it has an express right to do so under the agreement)
Retailers cannot ask suppliers to make payments:
For shrinkage (being loss of groceries in the retailers possession)
For wastage (being groceries unfit for sale), unless caused by the supplier’s negligence or default or as provided for in the agreement
To stock or list products (except for promotions or to stock new products)
To secure additional or superior shelf space and positioning (except for promotions or in accordance with the supply agreement)
Retailers may only delist products in accordance with the grocery supply agreement and for ‘genuine commercial reasons’
Retailers cannot require suppliers predominantly to fund the retailer’s costs of a promotion, and the retailer must give reasonable notice of promotions which the supplier has agreed to fund and must not over order products at the promotional price (for later sale at the non-promotional price)
Any labelling, packaging and preparation requirements, and fresh products standards must be provided by a retailer in clear, unambiguous and concise written terms.