The Australian Competition and Consumer Commission (ACCC) has launched legal action against Coles Supermarkets in Australia’s federal court alleging it engaged in “unconscionable conduct” in dealing with its suppliers.
The legal action follows an investigation into media reports that emerged three years ago claiming that suppliers were facing undue pressure from the supermarket giant. Around 50 suppliers came forward to speak to the ACCC, but only on a confidential basis after the competition watchdog struggled to get information because whistleblowers feared a backlash.
The ACCC then used its compulsory information gathering powers, forcing suppliers and Coles to provide information into the claims.
Last year, the ACCC told a Senate Estimates Committee about a range of actions it feared were a misuse of market power by supermarkets, including payments from suppliers, above those negotiated in their terms of trade; threats to remove products from supermarket shelves if extra payments or penalties were not paid; and failure to pay prices agreed with suppliers.
In its case, the ACCC alleges that in 2011, Coles developed a strategy to improve its earnings via better trading terms from suppliers and by introducing ongoing rebates paid by suppliers through a program called Active Retail Collaboration (ARC) program.
The ACCC alleges Coles had a $16 million rebate target from 200 smaller suppliers and threatened suppliers who did not agree to the deal with “commercial consequences”.
The ACCC allegations against Coles include:
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.
ACCC Chairman Rod Sims said the watchdog alleges 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 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,” Mr Sims said.
The ACCC is seeking pecuniary penalties, declarations, injunctions and costs from Coles in a case that could dramatically change the way supermarkets have been dealing with the companies that supply them and hit the retailer’s margins.
The ACCC broader investigation into allegations about the mistreatment of supermarket suppliers is continuing.
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