ACCC takes action against Coles for unconscionable conduct

Sue Mitchell
October 16, 2014
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The ACCC alleges Coles demanded improper payments from suppliers. Photo: Luis Enrique Ascui
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A Federal Court judge will decide whether grocery retailer Coles acted unconscionably by forcing suppliers to plug gaps in its profits and pay for wastage in its stores or whether such actions are a “normal” part of doing business.
The Australian Competition and Consumer Commission has launched further legal action against Coles, alleging Australia’s second largest retailer breached the law by engaging in unconscionable conduct against five suppliers, including cleaning products company Oates, Benny’s Confectionery and Bayview Seafoods.
The ACCC says Coles forced suppliers to pay “gaps” in the profit it made and the profits it wanted to make on products such as frozen food, potato chips and shower cleaner, even when it had no legitimate basis to do so.
The retailer sets aside at least one day a year called “Perfect Profit Day” when it set targets to recoup money from suppliers when profits failed to meet budgets, according to a statement of claim lodged in the Federal Court on Thursday
Coles is also alleged to have forced suppliers to pay the cost of wastage and markdowns in stores, even when suppliers had no control over these issues, and fined suppliers for late and missing deliveries without justifying the cost.
For example, when Coles’s profit from selling Oates cleaning products fell short of budget by $326,590 in 2011, Coles demanded that Oates pay the retailer the same amount, without explaining how it came to the figure or how the profit gap had occurred.
When Oates refused to pay the full amount immediately, Coles deducted $246,400 from a payment that was due to Oates without its permission, the ACCC alleges. Coates, which is owned by GUD Holdings, eventually agreed to pay $365,200 after Coles flagged a “range review”.
ACCC chairman Rod Sims has described this behaviour as the “most egregious” of “hundreds” of complaints made by suppliers against the major grocery chains over the last few years.
Coles rejected the allegations, describing its communications with suppliers as “normal topics for business discussions” between grocery suppliers and retailers around the world.
A Coles spokesman said the allegations concerned a limited number of dealings three years ago with just five suppliers who continued to do business with Coles,
The retailer, which has launched a Supplier Charter, also defended charging suppliers for wastage and late deliveries, saying stock-outs and high rates of spoilage frustrated consumers and pushed up prices.
But the ACCC believes Coles’s behaviour went beyond normal business practice or “robust” negotiations.
“We believe that this behaviour is contrary to prevailing business values and standards,” Mr Sims told Fairfax Media.
The ACCC says Coles took advantage of its superior bargaining position by demanding money when it knew it had no legitimate basis for doing so, failed to provide adequate information to suppliers to allow them to understand the basis upon which demands were made, and applied undue pressure by, in some cases, withholding money due to suppliers.
The new allegations come five months after the ACCC accused Coles of unconscionable conduct by using unfair tactics and misleading information to force about 200 suppliers to pay extra rebates to fund the cost of a supply chain improvement program, Active Retail Collaboration.
The new proceedings arise out of the same investigation but reflect the ACCC’s concerns with Coles’s day-to-day treatment of suppliers.
“If the court agrees these allegations are proven, then both these actions [the ARC case and latest case] give the court the ability to define the appropriate business boundaries around dealings between large businesses and their suppliers,” Mr Sims said.
with Georgia Wilkins
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