New ACCC allegations against Coles
Coles has rejected allegations of unconscionable conduct by the Australian Competition and Consumer Commission (ACCC) in a Statement of Claim lodged in the Federal Court in support of its prosecution of the retailer under competition laws.
The new claims lodged in the Federal Court arise out of the same investigation that led to the commencement of proceedings on May 5, associated with a supplier program called the ‘active retail collaboration program’ (ARC).
John Durkan, Coles MD, and one of the defendant parties in the landmark ARC legal proceedings, claims the allegations concern a limited number of dealings with five Coles suppliers three years ago – suppliers that are still valued trading partners of the chain.
Durkan says the allegations involve communications and negotiations about the failure to deliver products in the lead up to Christmas 2011, as well as waste and damage to products and the profitability of products.
“The individual communications with, and regarding, suppliers referred to in the ACCC’s Statement of Claim, were part of ongoing commercial negotiations involving a much broader, longer-term trading relationship with each supplier.
“These are normal topics for business discussions between grocery suppliers and retailers in Australia and around the world. Furthermore, commercial negotiations can be robust, regardless of the industry or sector.”
In a statement released following the lodgement the ACCC documents in support of its legal action, Coles claims that allegations about a ‘profit day’ related to an administrative day where discussions were held with suppliers in relation to outstanding claims and additional business opportunities.
“These discussions, including those concerning profit gaps, were aimed at improving the profitability of products.
“Profit gaps can occur when a product’s financial performance fails to meet business plans or expectations discussed between Coles and its suppliers.”
Durkin said products with poor sales performance limit Coles’ ability to deliver value to customers.
“The failure of suppliers to deliver agreed quantities of stock at agreed times, contrary to the terms of their contracts with Coles, results in significant shortages of stock in store.
“Empty shelves are a major source of customer frustration. During the cited period in 2011, Coles’ team members were working hard to get products on shelves for our customers in the lead up to Christmas, the busiest trading period of the year.”
Coles’ statement also noted that high levels of waste or the poor performance of products can contribute to higher prices for customers, which is why these issues are “actively managed by Coles”.
“Product waste can arise from various means including faulty packaging of product by suppliers, suppliers delivering products too close to their use by date or mishandling by suppliers or Coles.
“In other words, responsibility for waste may lie with the supplier, the retailer, or it may be shared. Again, payments for waste are a common business practice in retail in Australia and around the world.”
Durkan said Coles conducts substantial training with all team members to ensure that suppliers are treated in an open and fair manner and, since 2011, has taken “substantial steps to improve its ways of working with suppliers” and resolving disputes.
Initiatives include the drafting of the Food and Grocery Code of Conduct, the development of a supplier charter, and the appointment of former Victorian Premier, Jeff Kennett, as an arbitrator of the charter.
Rod Sims, ACCC chairman, said the legal action is a matter of significant public interest involving allegations of unconscionable conduct by a large national company in its dealings with small business suppliers in the “highly concentrated supermarket industry”.
“The ACCC alleges that Coles took advantage of its superior bargaining position by demanding money from suppliers that it was not lawfully entitled to, and was, in all the circumstances, unconscionable,” Sims said.
“The ACCC has commenced these proceedings because it considers the alleged conduct was contrary to the prevailing business and social values which underpin business standards that apply to dealings with suppliers.
“These proceedings will provide the court with an opportunity to consider whether conduct of this nature, if proven, is unlawful in the context of large businesses dealing with their suppliers.”
The ACCC head said earlier proceedings relating to ARC allege unconscionable conduct in the design and implementation of the ARC program specifically, whereas the new proceedings concern conduct which occurred in the course of Coles’ day to day interactions with suppliers.
In the latest proceedings, the ACCC alleges that in 2011, Coles, outside of its trading terms with the suppliers by:
- Pursuing agreements to pay Coles for “profit gaps” on a supplier’s goods – being the difference between the amount of profit Coles wanted to make on those goods and the amount it had achieved;
- Pursuing agreements to pay Coles, both retrospectively and prospectively, for amounts it claimed as “waste” on a supplier’s goods, which occurred after Coles had accepted the goods, and price reductions or “markdowns” implemented by Coles to clear goods and;
– Imposing fines or penalties on suppliers for short or late deliveries.
Contradicting Coles’ statement on waste and markdowns, Sims said the ACCC alleges that the causes of both profit gaps and “waste and markdowns” were usually outside the control of suppliers, and that the amount of the fines Coles imposed was unrelated to the value of the goods, to any loss that Coles might actually have suffered from the short or late delivery or to the reasons for the short or late delivery.
The ACCC alleges Coles took advantage of its superior bargaining position and sought to achieve these outcomes by, among other things:
– Demanding agreements to pay money where it knew, or ought reasonably to have known that it had no legitimate basis for doing so;
– Failing to provide adequate information to suppliers to allow them to understand the basis upon which the demands were made;
– Applying undue pressure by, in some cases, threatening measures that were commercially detrimental to the suppliers if they refused to agree to payments;
– Pressing suppliers for urgent responses to agree to payments; or
– Making multiple demands of suppliers for different types of payments and withholding money due to suppliers and refusing to repay money when it knew it was not entitled to retain it.
The ACCC is seeking pecuniary penalties, declarations, injunctions and costs in the new proceedings that are listed for a directions hearing in Melbourne at 10am on October 24 before Justice Gordon.