The ACCC has commenced legal action in the Federal Court against supermarket giant, Woolworths, alleging it breached Australian Consumer Law (ACL) by engaging in unconscionable conduct in dealings with a large number of its supermarket suppliers.
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 December 31 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’ which sought payments from a group of 821 ‘Tier B’ suppliers.
The ACCC alleges Woolworths’ category managers and buyers contacted a large number of the Tier B suppliers and asked for payments that ranged from $4291 to $1.4 million, to “support” Woolworths. Not agreeing to a payment would be seen as not “supporting” Woolworths, the ACCC said in a statement.
The ACCC also alleges the requests were made in circumstances where Woolworths was in a substantially stronger bargaining position than the suppliers and did not have a pre-existing contractual entitlement to seek the payments.
According to the watchdog’s allegations, 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.
“A common concern raised by suppliers relates to arbitrary claims for payments outside of trading terms by major supermarket retailers,” ACCC chairman, Rod Sims, said. “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 alleged conduct by Woolworths came to the ACCC’s attention around the time when there was considerable publicity about the impending resolution of the ACCC’s Federal Court proceedings against Coles Supermarkets for engaging in unconscionable conduct against its suppliers,” Sims said.
“Of course, the allegations against Woolworths are separate and distinct from the Coles case.”
Last year Coles was found to have engaged in unconscionable conduct towards a group of ‘Tier 3’ suppliers after an ACCC investigation. The supermarket paid more than $10 million in fines and agreed to refund suppliers $12 million.
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 first Directions Hearing is set for February 1, 2016.
Woolworths responds
Woolworths said it is reviewing the claims.
“Woolworths has been fully cooperating with the ACCC during the course of the investigation over the last year,” Woolworths said in a statement.
“We believe our conduct was consistent with Australian and international industry practice to engage regularly with suppliers over product and category performance.
“Woolworths believes in working cooperatively with suppliers. Woolworths was the first major supermarket to agree to sign the Grocery Code of Conduct and is currently implementing the Code across its business.”
Want more Inside Retail? Subscribe to Inside Retail Weekly now and get our premium print publication delivered to your door every week.
