01.Coles busted by ACCC
The ACCC (Australian Competition and Consumer Commission) has instituted proceedings in the Federal Court of Australia against Coles for alleged unconscionable conduct towards its suppliers, after a CHOICE investigation published in 2012 revealed the supermarket was charging suppliers a rebate to use an online "distribution portal" the supermarket had set up.
The consumer regulator will argue that Coles engaged in unconscionable conduct in relation to its Active Retail Collaboration (ARC) program, launched in 2011, in contravention of the Australian Consumer Law (ACL). This was part of a strategy developed by Coles to improve its earnings by obtaining better trading terms from its suppliers, the ACCC says.
The chargesheet: what Coles allegedly did
The ACCC alleges that Coles introduced ongoing rebates to be paid by its suppliers in connection with the Coles ARC program. The program involved the launch of a website portal that allowed suppliers to monitor their stock levels in Coles’ distribution chain. Coles then charged suppliers for the use of the portal, based on assumptions they made about the benefits to suppliers.
According to the ACCC, Coles sought to obtain $16 million in ARC rebates from smaller suppliers, requiring 200 of them to agree to pay 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 says. "The ACCC alleges that, in a number of cases, threats were made when suppliers declined to agree to pay the rebate."
The ACCC is alleging that Coles:
- Provided misleading information to suppliers about the savings and value to them from the ARC.
- Used undue influence and unfair tactics against suppliers to obtain payments of the rebate.
- Took advantage of its superior bargaining position by, among other things, seeking payments when it had no legitimate basis for seeking them.
- Required 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 conduct of Coles alleged by the ACCC in these proceedings was capable of causing significant detriment to small suppliers’ businesses. This could have resulted in these businesses becoming less able to plan and less able to innovate in the market, with resulting reduced economic efficiency and consumer detriment,” ACCC Chairman Rod Sims said.
“If 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.”
What small suppliers told CHOICE about dealing with Coles
CHOICE spoke with several suppliers in 2011 and 2012 regarding the big two supermarkets' dealings. One Coles supplier told us about his experience with the ARC and Coles distribution portal:
“Coles rang me out of the blue saying, ‘we’re setting up a distribution portal, we’ve calculated that you’ll save .5% in costs and we’re going to charge you .7% to use the portal’. We said we didn’t need it – we could run a month’s worth of stock in a day, and we had never let the supply chain down. We told them to take us off the list. For a big company the portal might be good, but not for us. But Coles wouldn’t take us off.
"It was a grab for money, and it was an extraordinary amount. A lot of small suppliers got hit with that.”