Australian regulator accuses Coles of malpractice in new legal action

In a Statement of Claim filed with the Federal Court of Australia, the ACCC has lifted the lid off, for the first time, some of the unscrupulous and unhealthy trading arrangements it says Coles has engaged in with its suppliers.

The statement comes six months after the ACCC first started proceedings in the Federal Court against Coles over an alleged breach in the country’s consumer laws, and less than a month after it banned the retailer from making “fresh bread​” claims on its par-baked products for a period of three years.

An abuse of market position​

According to the ACCC, in 2010-2011, managers at Coles were under pressure to extract additional money from suppliers to comply with “perfect profit day​” targets set from above, with each category having a different profit day.

To this effect, the ACCC revealed, Coles pursued suppliers to pay it for “profit gaps​” on the goods supplied to them¾the gap being the amount of profit Coles had wanted to make on those goods and the amount it had actually achieved.

The regulator also claimed that Coles asked suppliers to pay them, both retrospectively and prospectively, for amounts it claimed as “waste” on a supplier’s goods, which occurred after Coles had accepted the goods, and price reductions, or “markdowns​” implemented by Coles to clear goods.

The ACCC said that Coles followed these practices knowing fully that the causes of both “profit gaps” and “waste and markdowns” were usually outside the control of suppliers.

Furthermore, Coles also imposed fines or penalties on suppliers for short or late deliveries, according to the ACCC.

Moreover, these fines were unrelated to the value of the goods, to any loss that Coles might actually have suffered from the short or late delivery, or to the reasons for the short or late delivery, it said.

According to the statement of claim, Coles abused its market power to seek payments that were not legitimate and failed to provide adequate information to suppliers to allow them to understand the basis on which the demands were made.

In some cases, Coles and its representatives also used threatening and commercially fatal measures to pressurise suppliers into making payments.

These actions included pressing suppliers for urgent responses to agree to payments, making multiple demands of suppliers for different types of payments and even withholding money due to suppliers and refusing to repay money when it knew it was not entitled to retain it.

Routine practices, says Coles​

In a countering statement, however, Coles has rejected the claims of unconscionable conduct as alleged by the ACCC in its statement of claim.

According to Coles, the ACCC's allegations concern a limited number of dealings with five suppliers three years ago, but which “continue today to be valued suppliers to Coles”.​

Stating that these communications were part of ongoing commercial negotiations involving a much broader, longer-term trading relationship with each supplier, Coles said that “these are normal topics for business discussions between grocery suppliers and retailers in Australia and around the world”.​

On profit days, Coles said that these were regular “administrative days where discussions were held with suppliers in relation to outstanding claims and additional business opportunities”.​

“These discussions, including those concerning profit gaps, were aimed at improving the profitability of products,”​ the Coles statement added.

According to Coles, the failure of suppliers to deliver agreed quantities of stock at agreed times, results in significant shortages of stock in store, which in turn are a major source of customer frustration.

“High levels of waste or the poor performance of products can contribute to higher prices for customers, which is why these issues are actively managed by Coles,”​ the statement said.

“Product waste can arise from various means including faulty packaging of product by suppliers, suppliers delivering products too close to their use by date or mishandling by suppliers or Coles. ​

“In other words, responsibility for waste may lie with the supplier, the retailer or it may be shared. Again, payments for waste are a common business practice in retail in Australia and around the world​.”

Even so, Coles said that since 2011, it has taken substantial steps to improve its ways of working with suppliers and also initiated this year a supplier charter with the aim of strengthening relationships with suppliers.