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Coles in strife for ‘bullying’

The competition watchdog is taking Coles to court amid allegations the supermarket giant demanded payments from its suppliers it was not entitled to.

The Australian Competition and Consumer Commission (ACCC) has accused Coles of engaging in “unconscionable conduct” in breach of the Australian Consumer Law.

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Coles faces penalties of more than $1 million for each breach.

ACCC chairman Rod Sims alleged Coles had applied undue pressure to its suppliers even though it had no contractual right to do so.

ACCC chairman Rod Sims

ACCC chairman Rod Sims

“We’re alleging that Coles took advantage of its superior bargaining position to demand money that it either knew or ought to have known that it didn’t have a right to,” he said.

In a statement, Coles rejected the ACCC’s claims.

It said the allegations concerned a limited number of dealings with five Coles suppliers five years ago.

“All five suppliers continue today to be valued suppliers to Coles,” the statement said.

The case comes after the ACCC launched an investigation and court action into the company’s behaviour towards its suppliers earlier in the year as part of Coles’s Active Retail Collaboration program.

The ACCC said the new case involved the way Coles dealt with its suppliers on a day-to-day basis.

It alleges Coles in 2011 pursued agreements with suppliers to make them pay for profit gaps – the difference between the amount of profit Coles wanted to make on the goods and the amount it achieved.

Discounted meat on sale at a Coles Supermarket.

Discounted meat on sale at a Coles Supermarket.

The watchdog also alleges Coles chased agreements with suppliers for amounts it claimed as “waste” on a supplier’s goods and price reductions or “markdowns” used by Coles to clear the products.

It has also accused Coles of imposing fines or penalties on suppliers for short or late deliveries.

The ACCC alleges the profit gaps, waste and markdowns were usually outside the control of the suppliers, and the amount Coles imposed was unrelated to the value of the goods nor any loss Coles may have suffered.

Coles actively manages poor performance of products

The ACCC also alleges Coles applied undue pressure by in some cases threatening measures that were commercially detrimental to the suppliers if they refused to agree to the payments.

In response, Coles said it actively managed issues of waste and the poor performance of products because not doing so led to higher prices for customers.

“Product waste can arise from various means including faulty packaging of product by suppliers, suppliers delivering products too close to their use-by date, or mishandling by suppliers or Coles,” the company said.

“In other words, responsibility for waste may lie with the supplier, the retailer or it may be shared.

“Payments for waste are a common business practice in retail in Australia and around the world.”

The ACCC has also accused Coles of withholding money owed to suppliers and refusing to repay money when it knew it was not entitled to do so.

Managers used profit days to chase suppliers: emails

Court documents lodged by the ACCC refer to “profit day” or “perfect profit day” each calendar year when managers were under pressure to demand payments from suppliers to increase the supermarket’s profits.

Coles

Coles reportedly employed a ‘perfect profit day’ strategy.

In an excerpt from an email on October 5, 2011, a manager said: “Our profit position still well behind budget, we now need to be chasing all suppliers for any profit gaps we have to sales.”

Another email from November 8, 2011, said: “Ring suppliers today if you are short on profit.”

Managers were reminded in another email that the perfect profit day strategy was “meant to be kept low-key”.

‘Commercial negotiations can be robust’

Coles said the discussions around profit day were aimed at improving the profitability of the products.

“Products with poor sales performance limit Coles’s ability to deliver value to customers,” it said.

“The failure of suppliers to deliver agreed quantities of stock at agreed times, contrary to the terms of their contracts with Coles, results in significant shortages of stock in store. Empty shelves are a major source of customer frustration.”

Coles said the individual communications were part of ongoing commercial negotiations with suppliers in the lead up to Christmas 2011.

It said the communications were normal topics for business discussions between grocery suppliers and retailers.

“Commercial negotiations can be robust, regardless of the industry or sector,” a Coles spokesperson said.

The ACCC has been investigating claims for some time that the big supermarket chains have abused their market power by bullying suppliers.

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