ACCC launches legal action against Woolworths over allegations it mistreated suppliers

Eli Greenblat
DECEMBER 10, 2015
The chairman of the Australian Competition and Consumer Commission Rod Sims said he believed Woolworths’ attempts to squeeze as much as $60 million from more than 800 suppliers is one of the worst ever case of unconscionable conduct he has ever seen.
Mr Sims also told The Australian this evening that he was “extremely surprised and extremely disappointed” that Woolworths would engage in such behaviour late last year at the very same time that its arch rival Coles was in court defending similar allegations of bullying its food and grocery suppliers.
“I think this is at the high end of egregious behaviour,” Mr Sims told The Australian.
“In term of unconscionable conduct this is when you look at the amount of money involved, which is $18 million, by that standard it is clearly one of the worst we have ever seen.’’
Mr Sims said the ACCC was seeking Woolworths refund the $18.1 million it successfully squeezed out of suppliers as well as other penalties and costs.
It is alleged Woolworths engaged in this unlawful conduct, late last year, at the very same time arch rival Coles was dragged before the court facing similar allegations from the regulator, which Mr Sims said last night he was shocked to discover.
“I was extremely surprised and extremely disappointed to see this going on in the context of the matter that was before the courts in relation to Coles.”
In its announcement the ACCC said that this bullying of suppliers, demanding payments, was approved by “senior management”, but Mr Sims declined last night to comment at this stage how high up the Woolworths executive ranks this went. However, it could come out in court.
The ACCC at this stage has not named which suppliers were targeted by Woolworths to help fix the supermarket group’s profit hole, which internally at the retailer was nicknamed “mind the gap” but that this might come out in court and court documents.
First Directions Hearing set for February
The ACCC alleges that in December 2014, Woolworths developed a strategy, approved by senior management, to urgently reduce Woolworths’ expected significant half-year gross profit shortfall by 31 December 2014.
It is alleged that one of the ways Woolworths sought to reduce its expected profit shortfall was to design a scheme, referred to as “Mind the Gap”.
It is alleged that under the scheme, Woolworths systematically sought to obtain payments from a group of 821 “Tier B” suppliers to its supermarket business.
In a statement this afternoon the ACCC said it alleges that, in accordance with the ‘Mind the Gap’ scheme, Woolworths’ category managers and buyers contacted a large number of the Tier B suppliers and asked for Mind the Gap payments from those suppliers for amounts which included payments that ranged from $4,291 to $1.4 million, to “support” Woolworths. Not agreeing to a payment would be seen as not “supporting” Woolworths.
The ACCC also alleges that these requests were made in circumstances where Woolworths was in a substantially stronger bargaining position than the suppliers, did not have a pre-existing contractual entitlement to seek the payments, and either knew it did not have or was indifferent to whether it had a legitimate basis for requesting a ‘Mind the Gap’ payment from every targeted Tier B supplier.
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. It is alleged that Woolworths ultimately captured approximately $18.1 million from these suppliers.
“The ACCC alleges that Woolworths’ conduct in requesting the Mind the Gap payments was unconscionable in all the circumstances,” ACCC Chairman Rod Sims said.
“A common concern raised by suppliers relates to arbitrary claims for payments outside of trading terms by major supermarket retailers. It is difficult for suppliers to plan and budget for the operation of their businesses if they are subject to such ad hoc requests.”
The ACCC is seeking injunctions, including an order requiring the full refund of the amounts paid by suppliers under the Mind the Gap scheme, a pecuniary penalty, a declaration, and costs.
The matter has been filed in the Federal Court’s Sydney Registry. The first Directions Hearing is set for 1 February 2016 before Justice Yates.