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Woolworths [and Coles] under fire from suppliers as ACCC court action proceeds
by Andrew Robertson via mod - ABC Thursday, Feb 11 2016, 11:56pm
nation wide / coles / post

When you think of the phrase "Mind the Gap" it's usually a warning for danger around trains. At Woolworths it was the name of a program to extract money from suppliers.


"We did investigate, we have taken court action, it's before the courts, there's not much more I can say about it now, but it was surprising," the Australian Competition and Commission's chairman Rod Sims told the ABC.

So surprising that the ACCC is alleging conduct it describes as "unconscionable in all the circumstances".

That conduct, back in 2014, it claims was the pressuring of more than 800 of Woolies' second-tier suppliers for $60 million to cover a gap between target profit and actual profit.

Many said no, but the regulator said others paid, to the tune of $18 million.

The case comes just a little over a year after Coles was found guilty of misusing its bargaining power and ordered to pay $10 million in fines as well as paying back $12 million to affected suppliers.

"The judge basically said, deliberate, ruthless conduct and, really, Coles acting without conscience," said Rod Sims.

As a former head of Kellogg Australia Jean-Yves Heude knows first hand what it is like to sit across the negotiating table with Woolworths and Coles.

He said the relationship between the big two and suppliers changed when Wesfarmers took control of Coles in 2008.

"Before that, the way the industry was working was based on what I call the win-win model, where good relationships with people, long term relationships, not aggressive negotiation, was really the golden rule," Mr Heude said.

However, aggression towards suppliers became the rule when Wesfarmers recruited executives from Britain to run Coles, with tougher negotiations on industry staples, such as discounts.

"Pretty much now today 100 per cent of the discount is paid by the manufacturer, but in 2008 and before, it was more split and shared," said Jean-Yves Heude.

That is only part of the story.

Getting a product onto the shelves of Woolworths and Coles is not a simple transaction where there is a wholesale price, a margin added, and then a retail price.

The new Food and Grocery Code of Conduct gives big clues as to the types of behaviours manufacturers have been subjected to.

Among the behaviours now banned by the code are:

Payments for shelf space
Payments for the right to be a supplier
Payments for in-store food spoilage
Payments for promotions
Payments for store refurbishments.

"You would not have the code had the action not been taken against Coles for unconscionable conduct. The two are completely linked," said Mr Sims.
Independent grocers struggle against retail giants

It is not just suppliers who are feeling the heat from Woolworths' and Coles' aggressive tactics.

Small supermarkets say they are caught in the crossfire.

"The chains extract these deals and they're able to enjoy these deals and the independent sector is where a lot of suppliers tend to make their profit," said Master Grocers Association chief executive Jos de Bruin.

In other words, small supermarkets get charged more by suppliers which means, to match Woolies and Coles prices, margins are squeezed.

"The more discount they give to a chain store, the way we see it, the less discount they can give to our independent supermarkets," said Mr de Bruin.

Which may be true, but Jean-Yves Heude says it is just business.

"If your products are the same as two or three other competitors then you are in a price battle and then the buyer is going to use it against you," he said.

Last year Arnott's Biscuits fought back, threatening to withdraw its popular Tim Tams from Coles if a price rise was not granted.

It worked, and Mr Heude says even small suppliers can stand their ground if they have the right product.

"The minute they are unique and on trend then big Coles and Woolies, they need them," he explained.

"So the balance of power is related to the uniqueness and the relevance of what you do."

For many suppliers the power is with the supermarkets.

Woolworths, like Coles before it, will find out in the Federal Court if it abused that power.

[It is clear that imported UK executive staff have no idea how we do business in Australia. Foreigners have created the problem, notwithstanding allowing local incompetents to take the helm. When will they, board of directors, ever learn? Talented locals are required to run Australian businesses.]

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