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.