Australian supermarket Coles faces court over 'unconscionable conduct' toward suppliers

Will Green is news editor of Supply Management
19 May 2014

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19 May 2014 | Will Green

Australian supermarket Coles is facing legal action over the way it treated suppliers in attempting to force down prices.

The Australian Competition and Consumer Commission (ACCC) has started proceedings in the Federal Court against Coles Supermarkets over its Active Retail Collaboration (ARC) programme.

The ACCC alleges Coles “engaged in unconscionable conduct” in relation to the ARC programme, which sought ongoing rebates from suppliers, in contravention of the Australian Consumer Law.

According to the ACCC, Coles’ target was to obtain AUS$16 million (£8.9 million) from smaller suppliers in the form of rebates “based on purported benefits to large and small suppliers that Coles asserted had resulted from changes Coles had made to its supply chain”.

The ACCC alleged that in relation to 200 smaller suppliers Coles required agreement to the rebate within a matter of days. “If these suppliers declined to agree to pay the rebate, Coles personnel were allegedly instructed to escalate the matter to more senior staff and to threaten commercial consequences if the supplier did not agree,” said the ACCC.

“The ACCC alleges that in a number of cases threats were made when suppliers declined to agree to pay the rebate.”

In relation to these 200 suppliers, the ACCC alleged Coles:

•     Provided misleading information about the savings and value to them from the changes Coles had made.

•     Used undue influence and unfair tactics to obtain payments.

•     Took advantage of its superior bargaining position by seeking payments when it had no legitimate basis for seeking them.

•     Required suppliers to agree to the ongoing ARC rebate without giving them time to assess the possible value of the programme to their business.

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

The ACCC is seeking financial penalties, injunctions and costs. The case is listed to be heard on 6 June.

The proceedings form part of a ongoing broader investigation by the ACCC into allegations that Australia’s major supermarket chains are treating suppliers inappropriately.

In a statement Coles said: "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. The project involved improvements to both supply chain collaboration and efficiencies in logistics. It was designed to deliver benefits to Coles, suppliers and customers through lowering costs and improving availability of stock in our stores. Coles will vigorously defend the allegations made against it by the ACCC." 
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