Supermarket giant Woolworths has allegedly attempted to tap its suppliers for more than $60 million to shore up its balance sheet, the consumer watchdog says.
The Australian Competition and Consumer Commission (ACCC) is taking Woolworths to the Federal court, alleging the company engaged in unconscionable conduct after developing a strategy to “urgently reduce” its expected half year gross profit shortfall by the end of 2014.
Senior Woolworths management allegedly approved a scheme called “Mind the Gap” to obtain payments ranging from $4291 to $1.4 million from a group of more than 800 suppliers, the ACCC said.
“The ACCC alleges that Woolworths sought approximately $60.2 million in Mind the Gap payments from the Tier B suppliers, expecting that while many suppliers would refuse to make a payment, some suppliers would agree,” the ACCC said in a statement.
The watchdog says Woolworths ultimately obtained around $18.1 million from these suppliers.
“Not agreeing to a payment would be seen as not supporting Woolworths,” the ACCC said.
Requests were made in circumstances where Woolworths was in a substantially stronger bargaining position than the suppliers and did not have a contract to seek payments, the watchdog said.
“The ACCC alleges that Woolworths’ conduct in requesting the Mind the Gap payments was unconscionable in all the circumstances,” ACCC chairman Rod Sims said.
He said the ad hoc payment requests made it difficult for suppliers to plan and budget for the operations of their business.
The ACCC is seeking full refunds for suppliers as well as penalties, a declaration and costs.
It comes after the watchdog conducted broader investigations into allegations that supermarket suppliers were being treated inappropriately by major supermarket chains.
The matter is expected to be heard before Justice Yates in the Federal Court in Sydney on February 1 next year.
Woolworths said it is reviewing the ACCC claims and had been cooperating with the ACCC during the investigation.
“We believe our conduct was consistent with Australian and international industry practice to engage regularly with suppliers over product and category performance,” Woolworths said in a statement.
The company said it was implementing the Grocery Code of Conduct across its business.
Woolworths shares closed 23 cents, or .97 per cent, lower at $23.37 on Thursday.
The announcement was made just before the market closed.