After an investigation spanning more than two years, the ACCC has now commenced proceedings against Coles Supermarkets Australia Pty Limited and Grocery Holdings Pty Limited (together forming Coles) in relation to its conduct towards suppliers.
The ACCC alleges that in 2011, Coles sought to improve its earnings through ongoing rebates to be paid to suppliers through its Active Retail Collaboration (ARC) programme. Coles had a target of obtaining $16 million in ARC rebates from smaller suppliers in the form of a percentage of the price it paid for the products of the supplier. It was calculated by reference to a percentage which Coles suggested was referable to the value of the supplier being able to access the Coles supplier portal and the asserted value to the supplier for Coles having changed its ordering patterns, where applicable.
The case is being brought for unconscionable conduct, rather than a misuse of market power.
The claim relates to 200 smaller suppliers, which the ACCC alleges were required by Coles to agree to the rebate in a very short timeframe. The ACCC claims that if the suppliers decline to agree to the rebate, Coles personnel were instructed to escalate the issue to more senior staff in the supplier, and to threaten commercial consequences if the rebate was not agreed.
The conduct by Coles which is alleged to have amounted to unconscionable conduct includes:
- providing misleading information to suppliers about the savings and value to them from the supply changes Coles had made
- using undue influence and unfair tactics against suppliers to obtain agreement to the rebates;
- taking advantage of its superior bargaining position by, amongst other things, seeking payments when it had no legitimate basis for seeking them
- requiring suppliers to agree to the rebate without providing them with sufficient time to assess the value, if any, of the benefits of the ARC programme to their business.
In a media release following the filing of proceedings, Coles has said that it is “totally committed to negotiating fairly and working collaboratively with its suppliers, providing opportunity for suppliers to grow”. It says that the ARC programme “was designed to deliver benefits to Coles, suppliers and customers through lowering costs and improving availability of stock”. It has vowed to vigorously defend the allegations made against it.
Interestingly, industry group, Australian Dairy Farmers, has welcomed the action. It has long been a vocal opponent of $1 per litre milk, which was part of a price war between Coles and Woolworths and which dairy farmers complained about. This contrasts with a statement by Sabrands,the owner of the Rosella sauce business, which says that the brand has survived as a result of support by Coles and other large supermarket chains.
It will be interesting to see the evidence led by the ACCC, especially as suppliers were reportedly reluctant to come forward out of fear of what they perceived to be possible repercussions. Eventually, approximately 50 market participants provided information on a confidential basis, and the ACCC ultimately used its information gathering powers to obtain evidence compulsorily. Unconscionable conduct claims are not easy to successfully make out, so the strength of evidence of “moral turpitude” on the part of Coles is particularly important.
The first directions hearing in the matter is scheduled for 6 June 2014.