ACCC drags Coles into court over supplier deals

Supermarket giant Coles is today defending itself against allegations by the Australian Competition and Consumer Commission that it engaged in unconscionable conduct towards 200 of its smaller suppliers.

In the latest development in the competition watchdog’s investigation into claims the major supermarkets have used improper practices to force down prices paid to suppliers, the ACCC has initiated proceedings against Coles in the Federal Court and is seeking pecuniary penalties, declarations, injunctions and costs.

The allegations relate to the Coles Active Retail Collaboration program, developed by the retailer in 2011 in a bid to obtain better trading terms from its suppliers.

The ACCC alleges Coles used the program to attempt to improve its earnings by requiring suppliers to pay ongoing rebates based on purported benefits for the suppliers from changes Coles had made to its supply chain.

The ACCC will argue Coles breached Australian Consumer Law by providing misleading information to suppliers about the savings and value of the program; using undue influence and unfair tactics against suppliers to obtain the rebates, and in some cases threatening commercial consequences when rebates were not paid; taking advantage of its superior bargaining position; and requiring 200 of its smaller suppliers to agree to rebates without sufficient time to assess the value of the deal.

In a statement issued to SmartCompany, Coles said it will “vigorously defend the allegations made against it by the ACCC”.

“The ACCC legal action concerns a detailed supply chain program implemented by Coles over two years ago as a part of its strategy to develop a more efficient and internationally competitive supply chain,” said the company.

“The project involved improvements to both supply chain collaboration and efficiencies in logistics [and] it was designed to deliver benefits to Coles, suppliers and customers through lowering costs and improving availability of stock in our stores.”

“Coles is totally committed to negotiating fairly and working collaboratively with its suppliers, providing opportunities for suppliers to grow; this has been integral to Coles’ turnaround strategy from the start,” said the company.

The ACCC said the legal proceedings are the result of its continuing investigation into long-standing claims Australia’s major supermarket chains have used their market power to bully food producers over prices and supply.

The ACCC began investigating the claims in November 2011, calling for confidential information from grocery suppliers in February 2012 and undertaking a detailed investigation between June 2012 and December 2013.

“The conduct of Coles alleged by the ACCC in these proceedings was capable of causing significant detriment to small suppliers’ businesses,” said ACCC chairman Rod Sims in a statement.

“This could have resulted in these businesses becoming less able to plan and less able to innovate in the market, with resulting reduced economic efficiency and consumer detriment.”

“The ACCC alleges that 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 in all the circumstances unconscionable,” said Sims.

“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,” he said.