Woolworths urged to settle ACCC supplier claims

Sue Mitchell
Aug 2 2016
AFR
Woolworths is under growing pressure to settle an unconscionable conduct case with the competition regulator amid signs that poor relationships with suppliers are stymieing its attempts to revive supermarket sales.
Woolworths chief executive Brad Banducci has made rebuilding bridges with suppliers a priority since taking the helm in February, but conceded last week that Woolworths “still had a lot of work to do” to improve supplier relationships.
“We’ve been working very hard on this but it’s still very much a work in progress for us, making sure we have the right level of collaboration … and we’re not there yet,” Mr Banducci told analysts after announcing plans to close supermarkets and curtail new store development.
Analysts said Woolworths needed to improve its relationship with suppliers to secure better trading terms and more contributions towards price reductions and promotions.
But recent feedback from suppliers and industry players suggested that there has been little improvement in the last year and Woolworths was still using negotiations with suppliers over prices and promotions as a way to boost margins rather than lift customer traffic and sales.
A supplier survey conducted by the Australian Food and Grocery Council last month highlighted the gap between Woolworths’ behaviour and that of Coles and Aldi since the introduction of the grocery code of conduct.
About 80 per cent of respondents said Woolworths’ behaviour had worsened or stayed the same over the last 12 months and only 12 per cent believed it had improved. Just over half (52 per cent) of Woolworths’ suppliers said the chain “rarely” or “never” complied with the grocery code.
In contrast, 47 per cent of respondents felt Coles’ behaviour had worsened or stayed the same and 43 per cent believed it had improved, while two-thirds of suppliers said Coles “mostly” complied with the code.
“Coles is now very customer centric while Woolies is all profit centric,” said one industry source.
Analysts said Woolworths should follow the lead of Coles and settle an unconscionable conduct case brought last December by the Australian Competition and Consumer Commission.
The ACCC accused Woolworths of unconscionable conduct by trying to force suppliers to plug a $50 million hole in its December-half 2014 profits by demanding more than $60 million in extra payments.
Coles denied similar allegations by the ACCC but finally admitted to the claims in December 2014, agreeing to pay $10 million in penalties.
Woolworths and the ACCC were scheduled to hold court-ordered mediation talks in the Federal Court in Sydney last Friday.
However, a Woolworths spokeswoman said the retailer had no plans to settle and would continue to defend the case.
“We do not believe our conduct was unconscionable, and what the ACCC has alleged is extremely different from the Coles case,” the spokeswoman told The Australian Financial Review.
Woolworths has previously said its conduct was consistent with Australian and international industry practice.
However, ACCC chairman Rod Sims has said that if the demands were in line with industry practice, they needed to be stamped out.
Analysts said Woolworths’ continued defence of its treatment of suppliers highlighted the gap between the retailer’s and suppliers’ perceptions.
“It’s pretty clear there is a lot of work to be done within Woolworths from a supplier’s perspective – that’s the feedback we get,” one analyst said. “There’s still a lot of room for improvement.”