The Australian Competition and Consumer Commission (ACCC) is taking supermarket giant Coles to court, alleging that it has engaged in “unconscionable conduct” against suppliers. Why does that matter, and what difference might it make to your supermarket experience in the long run?
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Because of the dominant position of the two major supermarket chains (Woolworths and Coles) and the relative isolation of the Australian market, there have long been concerns that those chains might be able to take advantage of that dominance to extract better pricing from suppliers. In simple terms, the assumption has been that a large chain can say to a provider: “Sell us your stuff for less, or we won’t sell it at all.” If a business operates solely in the Australian market, it might feel it doesn’t have any choice, even if that price makes it difficult or impossible to make a profit.
Those allegations have surfaced in all sorts of contexts, from the price of milk to the sourcing of house brand goods. The ACCC has been investigating supermarket competition issues since September 2011, and has raised several concerns about Coles during that period, including confusing customers over whether vegetables are grown in Australia, importing goods then saying they were baked in store and inaccurate claims about what farmers are paid. This is the first allegation of major anti-competitive action across the board, rather than in a more limited field, to result from the investigation.
The ACCC allegations centre around Coles’ Active Retail Collaboration (ARC) scheme, in which suppliers paid Coles a rebate based on the fact that Coles was placing orders in what are described as “economic order quantities”. In theory, if a business knew it was making far more because it could produce goods in bulk, it might well be willing to pass back some of that profit in the form of a rebate. Coles expected to make $16 million from the project.
The ACCC alleges, however, that the economic benefits of the ARC scheme to suppliers were not always clear, that suppliers were only given a small period of time to assess the scheme, and that they were threatened with having products dropped if they did not sign up. Specifically, the ACCC announcement says that it is accusing Coles of:
- providing misleading information to suppliers about the savings and value to them from the changes Coles had made;
- using undue influence and unfair tactics against suppliers to obtain payments of the rebate;
- taking advantage of its superior bargaining position by, amongst other things, seeking payments when it had no legitimate basis for seeking them; and
- requiring those suppliers to agree to the ongoing ARC rebate without providing them with sufficient time to assess the value, if any, of the purported benefits of the ARC program to their small business.
We don’t yet know which suppliers are involved, in part because the ACCC undertook not to disclose the identities of any whistle blower companies who provided it with information during its initial investigations. The ACCC also says investigations are ongoing.
There are unlikely to be any immediate changes in your local supermarket, since the court case will take time. One possible outcome if the ACCC wins is that the cost of some goods might go up, since Coles won’t make money from the rebates and might put up prices to compensate. We don’t yet know if similar tactics are used by other retailers, so it’s hard to predict the long-term impact across the supermarket sector.
Even if prices do go up, that might seem a reasonable trade-off if it also allows other businesses to operate in a fairer environment. “If this conduct is established in court, the ACCC expects that the community will share the ACCC’s view that business should not be conducted in this way in Australia,” ACCC chairman Rod Sims said.
Comments
6 responses to “What The ACCC Case Against Coles Means For Supermarket Shoppers”
Well, those are pretty much just standard practices when working with any major Australian retailer, when you’re a small supplier. Every retailer will try and strong arm smaller suppliers into paying rebates and fees for various dubious services (if any at all!), pretty much with the threat of de-listing, or reduction of shelf space.
Doesn’t make it Ok to do so, or fair…
Never said it was.
We’re sorry. Here’s 4c a litre off petrol as our way of saying sorry. Rebate can only be used at participating outlet (singular) and not available on weekends, public holidays, weekdays or days ending in “Y”
You can pretty much guarantee that Woolies have been doing the same thing, pity the ACCC is a toothless tiger.. given some choppers it might actually make a difference. I really hope that this goes in the favour of the suppliers though, I don’t mind paying a little extra for variety and quality…!
The one thing that is starting to seriously urk me in Australia (from what I can see, not been over seas) is that you walk into a retailer… be it Coles… Woolies.. Target…K-Mart… its all their own branding… there seems to be no freedom of choice any more. It’s more of a “we will throw our own branded options down your throat if you don’t like it.. well you can go nowhere instead” idea.
This is nothing new. It started back in the 1970’s with the arrival of a US pet food manufacturer. They brought with them the idea of paying supermarkets to display their products prominently. Of course, the chains thought that was a good idea and soon applied it to all other suppliers. Eventually it led to paying for shelf space in stores. And, as a result we see what the ACCC is trying to deal with today. Good luck to them if they think they can succeed in reigning in the power the big two wield. Consumers certainly won’t benefit – that’s a guarantee.
It’s not limited to grocery. All Wesfarmers’ businesses (in particular) are notorious for abusing their position. This very same thing happens when dealing with Bunnings, Wesfarmers Industrial Safety – which includes Blackwoods, Protector Alsafe, Bullivants etc – OfficeWorks; all of them. If the ACCC conducted a similar investigation into Bunnings I am certain the outcome would be at least as bad, and most likely worse!!!
Time to jail the heads of the companies when the companies are found guilty. Problem is; You steal a loaf of bread from them and you go to jail, They steal millions from producers and customers and pay a 5-10% fine. Pretty obvious how to fix it but no politician has the balls – and the corporations know it.