Coles fined $10m for ‘serious’ misconduct against suppliers

AAP
DECEMBER 22, 2014
COLES will pay $11.25 million in fines and costs but could end up paying more than double that refunding its suppliers, after a court agreed to the supermarket giant’s settlement with the competition watchdog.
Federal Court judge Michelle Gordon said Coles had engaged in illegal and unconscionable conduct in its dealings with suppliers, including demanding payments that it was not entitled to fill its own profit gaps and threatening commercial consequences.
Justice Gordon had suggested last week that the settlement with the Australian Competition and Consumer Commission had not involved severe enough penalties but ultimately accepted it, saying today she had taken Coles’s admission of wrongdoing into account.
The $10 million in fines applies to Coles’ treatment of suppliers involving 15 instances and eight suppliers in which it breached consumer law.
Coles had threatened suppliers with commercial consequences, including not granting future contracts or promotion of products, if it was not paid to fund a supply chain improvement program or fill profit gaps.
More than 200 suppliers will now potentially be able to seek refunds from Coles over extra payments that were demanded to fill gaps in profit, related to Coles squeezing suppliers when it felt it had not made enough of a profit on products for various reasons such as poor sales, discounts or waste.
Justice Gordon has strongly criticised Coles, saying its misconduct was “serious, deliberate and repeated” and that it misused its bargaining power.
“It was contrary to conscience,” she said.
“Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings.
“Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand.
“Coles withheld money from suppliers it had no right to withhold.”
She noted that Coles now admits that its conduct was contrary to law and involved serious breaches.
Coles Managing Director John Durkan repeated last week’s apology.
He said the company “unconditionally apologises and accepts full responsibility for its actions in these supplier dealings.
“Since these incidents occurred in 2011, Coles has taken many steps to both improve its relationships with suppliers and help its suppliers grow,” he said.
The ACCC’s court documents, released earlier this year, included evidence of internal emails from Coles executives detailing an annual “profit day”, in which staff were pushed to squeeze suppliers for payments to fund profit gaps.
Launching the second of two legal cases in October, ACCC chairman Rod Sims described Coles’ conduct as unconscionable, a misuse of market power and unfair profit shifting from suppliers to the supermarket giant.
Coles is the second largest retailer of grocery products in Australia.