Coles threatened 200 suppliers over rebates, ACCC claims

MAY 05, 2014
COLES threatened to boot Guylian chocolates and Orange Power cleaners from its shelves unless suppliers paid rebates that had no legitimate basis, according to allegations contained in explosive court documents filed by the competition cops.
The Australian Competition and Consumer Commission launched Federal Courtaction against the supermarket giant today, alleging standover tactics were used against 200 small and medium-size suppliers.
ACCC IN COURT: Coles accused of $16M scam
The ACCC alleges in March 2011 Coles contracted consultants to help find ways to lift earnings. Within a month a plan was developed to cut the cost of buying groceries from suppliers by seeking rebates — a “sharing of benefits” from changes to the Coles supply chain.
Coles indicated today it will vigorously defend the allegations.
According to the ACCC’s statement of claim, smaller suppliers were to pay Coles 1 per cent of the cost of groceries supplied. The initial goal was to raise $30 million from so-called “tail suppliers”. Later this target was cut to $16 million.
If a Coles staffer could not get a rebate agreement, options included “threatening the supplier” by refusing to buy any more groceries or to cut “poor-performing” products, according to the court documents.
The statement of claim alleges that those threatened included Stuart Alexander & Co, which supplies Guylian chocolates and Illy coffee, as well as Austech Products, which supplies Orange Power cleaners.
Suppliers who did not agree to pay the rebate also faced “escalation” higher within Coles, as far up as the merchandise director. By November 25, 2011, at least 62 suppliers had faced “escalation”. These included Maggie Beer, 3M, Norco, Bonds, Bic, Kikkoman, Yakult, Jalna, Dulux and Bartter.
The ACCC alleges Coles “took advantage of its superior bargaining position”, provided misleading information and applied “undue influence and pressure”. This, it says, is “unconscionable conduct” in breach of Australian Consumer Law.
Coles made “demands of their suppliers and used very unfortunate tactics to do so”, ACCC chairman Rod Sims told News Corp Australia.
There was “no legitimate basis” to make the demands, Mr Sims added.
Investigation on going … “No legitimate basis for Coles’ demands” said ACCC chairman Rod Sims. Source: News Limited
Coles responded by saying it would “vigorously defend the allegations made against it by the ACCC.
“The … legal action concerns a detailed supply chain program implemented by Coles over two years ago as a part of its strategy to develop a more efficient and internationally competitive supply chain,” Coles said in a statement.
“The project involved improvements to both supply chain collaboration and efficiencies in logistics. It was designed to deliver benefits to Coles, suppliers and customers through lowering costs and improving availability of stock in our stores.”
Coles also noted it had supported a code of conduct proposed by the industry.
However, the ACCC doesn’t think the code is worth the paper it’s written on because it wouldn’t prevent the type of behaviour alleged in this court action.
“You can drive a truck through the code,” Mr Sims said.
The code is being assessed by the Federal Government.
This is the first court action to emanate from a broader ACCC investigation into the relationships between supermarkets and suppliers. Mr Sims said the investigation was ongoing.
If these allegations are sustained in court, Coles would face penalties of up to $1.1 million per breach. It would be up to the court to determine how many, if any, breaches had occurred.