The Australian Competition and Consumer Commission (ACCC) has recently launched legal action against supermarket giant, Coles for using its superior bargaining power to extract payments from its suppliers that it knew, or should have known, it was not entitled to. The accusations involve Coles’ commercial relationships with up to 200 suppliers, and despite Coles vehemently denying the allegations, at least 50 small suppliers have already approached the media to share their concerns.
In bringing the legal action, the ACCC has accused Coles of ‘unconscionable conduct’, alleging that Coles took advantage of its strong market position in order to demand penalty payments from their smaller suppliers in order to hit profit targets. These penalties have faced substantial criticism from the ACCC who emphasise that they are unrelated to the value of the goods supplied or to any potential losses Coles might have suffered. Instead, the ACCC has asserted that the penalties being imposed on the small suppliers are contingent on factors entirely external to the suppliers’ control.
According to evidence submitted in support of the ACCC’s pleadings, in late 2010, Coles’ management was under pressure to achieve the ‘perfect profit day’ and maximise profit targets. In pursuit of this, managers were encouraged to pursue small suppliers in order to secure payments, without providing suppliers with sufficient time to consider the demands. The ACCC asserts that through such unconscionable practices, Coles was seeking to obtain $16 million from smaller suppliers. Money which allegedly, Coles knew, or should have known that it was not entitled to.
In response, Coles has continued to strongly deny the allegations. While the ACCC has accused Coles of adopting programs which seek to maximise profits at the expense of smaller suppliers, Coles has defended itself in a statement asserting that “the aim of this program was to deliver cost savings to both Coles and suppliers and to improve product availability and enhance supply chain collaboration”. Moreover, representatives for the supermarket giant have emphasised that its efforts surrounding profit day were conducted in the best interests of its customers, with the aim of improving value. Coles highlighted that “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”.
However, the ACCC has demonstrated that it is not interested in Coles’ efforts to appease customers. Instead the ACCC has demand that Coles be held accountable for its failure to deal openly and fairly with the small suppliers upon which it relies.
While a trial date has yet to be set down, the case is due for an additional directions hearing before the court in late November. Until then, with at least 200 suppliers allegedly having been affected, it will remain to be seen whether more will come forward to share their experiences.
Written by Shine Lawyers. Last modified: October 29, 2014.