Australian supermarket chain Coles needs to pay A$11.25 million in fines and costs and potentially far more in the near future, to refund suppliers for illegally squeezing them for funds. The food and liquor giant’s settlement with the competition watchdog over charges of unconscionable conduct in its treatment of grocery suppliers was accepted by the Federal Court last month.
The nation’s second largest supermarket chain had deliberately and illegally misused its market power to squeeze small suppliers for money, Judge Michelle Gordon told the court. The Federal Court imposed the A$10 million fine and $1.25 million in legal costs over 15 breaches of the law.
The verdict was welcomed by the Australian Food and Grocery Council, which also applauded Coles and Woolworths for working with it on a code of conduct. However the industry body has warned members in writing about Woolworths also seeking to recoup money for “profit gaps”, although it has not facing any charges.
The payments to Coles filled what it called its “profit gaps” or targets, which in reality meant profit shifting and deducting money it was supposed to pay suppliers.
Because Coles represented a significant proportion of the small suppliers’ sales, it was able to successfully pressure them by threatening to stop buying their products, the court found.
Cleaning products supplier Austech was illegally pursued for more than $200,000, the court found.
Processed meat products supplier Colonial Farm was already in financial difficulty when Coles warned it that the future of their business relationship depended on it filling 100 percent of profit gaps.
That included payments for waste – when a product is lost, stolen or unfit for sale – products that are marked down and short or late deliveries.
Coles knew it could cause those issues by its own acts and omissions, rather than the suppliers, Justice Gordon said. “It was contrary to conscience,” she said.
“Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings.
“Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand.”
While only eight small suppliers were named in the ACCC’s documents, 221 can now seek tens of millions of dollars in refunds for rebates they paid to Coles’s supply chain improvement program.
That process is being run by “independent arbiter” and former Victorian premier Jeff Kennett.
Coles managing director John Durkan repeated last week’s apology, saying that the company “unconditionally apologises and accepts full responsibility for its actions in these supplier dealings.
“Since these incidents occurred in 2011, Coles has taken many steps to both improve its relationships with suppliers and help its suppliers grow,” he said.