Woolworths’ supplier payments plan ‘slapdash, haphazard, unreasonable’

ANDREW WHITE
October 31, 2016
The Australian
Supermarket giant Woolworths acted in a “slapdash, haphazard and unreasonable manner’’ in demanding payments from suppliers to make up a shortfall in it is own profits, the Federal Court has heard.
Woolworths had conceived the scheme in November and did not bother to properly train staff who would be asked to approach suppliers for payments to meet its own profit targets, the court heard.
The Australian Competition and Consumer Commission has launched Federal Court proceedings against Woolworths, alleging it engaged in unconscionable conduct in dealings with a large number of its supermarket suppliers.
It has alleged that in December 2014, Woolworths developed a strategy, approved by senior management, to make up a shortfall in gross profit by demanding $60.2m of payments from those suppliers.
The “Mind the Gap” scheme targeted a group of 821 “Tier B” suppliers to its supermarket business, seeking payments of up to $1.4m to “support’’ Woolworths and giving them just days to pay.
Counsel for the ACCC, Norman O’Brien told the court Woolworths had no contractual basis for seeking the money from suppliers but had maintained the payments were factual and “statistically based’’.
No provision for such payments was included in the vendors guide or Woolworths’ own code of conduct.
“It was not a contractual bargain that was being entered into it was a recovery for a past loss of profits Woolworths considered it had lost at the hands of its suppliers,’’ Mr O’Brien told he court.
The court heard that senior management of the company, including then director of supermarkets and petrol Tjeerd Jegen, were involved in devising the plan, briefing staff and setting targets to recover the money from the suppliers. Instructions included an ‘escalating’ the matter to senior management of the company if suppliers rejected the demands.
Woolworths drew up plans to ask suppliers for up to 10 times the amount it expected to get under the Mind the Gap plan but discounted the actual demand based on the expected reaction from them to a demand for the full amount.
The court heard that McKinsey and Bain & Co were also included in the plan, with an email from one McKinsey employer existing the plan would raise $20m, the court heard.
Woolworths devised four “lenses” to judge the likely payment and in each case took the maximum figure to develop a “consolidated view’’ on how much each supplier should be asked for.
But Mr O’Brien told the court that in discussions with suppliers Woolworths’ “assault crew’’ made mistakes including an incorrect understanding of simple mathematic terms.
“We say Woolworths made up these measures,’’ Mr O’Brien said.
“In a sense Woolworths didn’t care whether the maths that was driving this exercise made sense.’’
The plan was to “get some numbers on the page,’’ create justifications around it “and bank the money by Friday.’’
That is one of the reasons why this is unconscionable, he said.
The hearing continues.