Unconscionable Conduct: ACCC Launches Legal Action Against Coles
Tuesday 6 May 2014 @ 9.45 a.m. | Trade & Commerce
Yesterday the Australian Competition and Consumer Commission (ACCC) began Federal Court proceedings against Coles Supermarkets Australia Pty Ltd and Grocery Holdings Pty Ltd (together, Coles). The ACCC is alleging that Coles has engaged in unconscionable conduct when dealing with its suppliers, including groups such as Red Bull, Yakult, Carman’s Fine Foods, Maggie Beer Products, Bic and the Dulux Group. The alleged breaches of the Australian Consumer Law include:
- providing misleading information to suppliers about the savings and value to them from the changes Coles had made;
- using undue influence and unfair tactics against suppliers to obtain payments of the rebate;
- taking advantage of its superior bargaining position by, amongst other things, seeking payments when it had no legitimate basis for seeking them; and
- requiring those suppliers to agree to the ongoing ARC rebate without providing them with sufficient time to assess the value, if any, of the purported benefits of the ARC program to their small business.
The ARC Program
The allegations stem from what Coles called its “Active Retail Collaboration” program (ARC). The program involved Coles seeking rebates from its suppliers that were purportedly based on the benefits they would gain from improvements Coles had made to its supply chain. The ACCC alleges that Coles were aiming to obtain $16 million worth of ARC rebates, and that smaller suppliers were asked for an ongoing rebate in the form of a percentage of the price Coles paid for the products. The ACCC media release says:
"Coles required agreement by the supplier 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. The ACCC alleges that, in a number of cases, threats were made when suppliers declined to agree to pay the rebate."
The Sydney Morning Herald has reported that court documents indicate “a script was written to help Coles representatives talk to their supplier accounts and to get them to hand over the cash”. The report says that Red Bull was asked for $200,000 in what was called the “direct ask approach”, but that the Red Bull refused to pay. However, other companies appeared to have agreed, with the SMH reporting:
"Proctor & Gamble agreed to pay Coles on an ongoing basis a percentage amount of 0.45 per cent of the price Coles paid Proctor & Gamble for its grocery products, according to court documents, General Mills agreed a price of a 0.6 per cent payment. Swiss food giant Nestle refused to pay."
The ACCC Investigation
The Coles case is the first legal action to come from a broader investigation into the major supermarket chains. The ACCC have been investigating claims from suppliers since November 2011, when allegations first surfaced in media reports. Many suppliers were apparently “reluctant to speak to the ACCC for fear of what they perceived may be the consequences”, and so much of the information was provided on a confidential basis. ACCC Chairman Rod Sims said that in accordance with this commitment to confidentiality, the documents relied on in the Coles proceedings “were obtained by use of the ACCC’s compulsory statutory information gathering powers”.
Coles has said it intends to defend the allegations, telling ABC News that it is committed to “negotiating fairly and working collaboratively with its suppliers”. It said the ARC program was:
"part of [a] strategy to develop a more efficient and internationally competitive supply chain… designed to deliver benefits to Coles, suppliers and customers through lowering costs and improving availability of stock in our stores".
Rod Sims believes that:
"[i]f 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".
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