Admission of unconscionable conduct leads to Coles adoption of buyer training program

Posted by AFN Staff Writers on 17th December 2014
Admission of unconscionable conduct leads to Coles adoption of buyer training program
Admission of unconscionable conduct leads to Coles adoption of buyer training program

Australian supermarket giant Coles has said it will immediately introduce an independently-run six-monthly training program for all its buyers on best practice commercial dealings.

The announcement comes after Coles admitted it had engaged in unconscionable conduct when dealing with certain suppliers in 2011. Australian Food News reported on Monday that Coles and the Australian Competition and Consumer Commission (ACCC) had made joint submissions to the Federal Court of Australia seeking orders from the Court, after agreeing to resolve the two separate proceedings instituted by the ACCC alleging unconscionable conduct by Coles.

On 5 May 2014 and 16 October 2014 the ACCC instituted proceedings against Coles alleging that on a number of occasions in 2011, Coles contravened the Australian Consumer Law.

Coles conducted internal investigations

After being presented with the ACCC’s claims, Coles said it had “extensively reviewed” the materials made available by both the ACCC and its own internal investigations.

“Coles unconditionally apologises and accepts full responsibility for its actions in these supplier dealings,” said John Durkan, Coles Managing Director. “I believe that in these dealings with suppliers, Coles crossed the line and regrettably treated these suppliers in a manner inconsistent with acceptable business practice,” he said.

“ACCC Chairman, Rod Sims, said at the time of launching this action ‘the alleged conduct was contrary to the prevailing business and social values which underpin business standards that apply to dealings with suppliers’,” Mr Durkan said. “In the dealings we have identified, I believe that statement is appropriate,” he said.

The first ACCC proceeding into the ARC supply chain program

The first ACCC action related to allegations in respect of a supply chain program in 2011 titled Active Retail Collaboration (ARC) in relation to Coles’ smaller suppliers. As part of ARC, suppliers were asked to pay an ongoing rebate, in return for collaborative planning and greater data sharing, through access to the Coles Supplier Portal and changes to ordering quantities to ensure they were economically efficient.

Coles said it recognised the importance of best practice business conduct to its suppliers. However, at times during the business negotiations in respect of the ARC program, Coles acknowledged that it fell “considerably short” of these standards and the reasonable expectations of suppliers.

Coles has identified with the ACCC, dealings with a number of suppliers where its conduct was unacceptable and has made a number of admissions. In these particular dealings, Coles said it was “not respectful of supplier needs for full and timely transparency, and of the responsibility attached to Coles’ bargaining power”. Coles now awaits the Judge’s decision on these matters.

Proposed arbitration process

Coles has proposed an Undertaking to the ACCC to establish a formal process that will allow any Tier 3 supplier in ARC to seek recourse should they believe they have not received benefits from the program commensurate with the costs incurred. This process will be led by an Independent Arbiter and be conducted confidentially, with suppliers assisted by an independent auditing firm.

The costs of this process will be borne by Coles and Coles will be bound by the decisions of the Arbiter. Mr Jeff Kennett AC, who performs the role of Independent Arbiter under the Coles Supplier Charter, has agreed to undertake this role.

Second ACCC proceeding relating to late delivery, waste and profit gap claims

The second ACCC action related to allegations in respect of communications and negotiations in late 2010 and 2011 with a number of suppliers about the failure to deliver products, as well as claims for waste and damage to products and profitability of products.

With regard to these proceedings, Coles said it had identified dealings in relation to a number of suppliers in 2011, where its conduct “fell short” of accepted business standards.

Coles has made admissions of unconscionable conduct in relation to each of these dealings and will await the Judge’s decision.

“These suppliers were not treated with the transparency and respect that they should be able to expect,” Mr Durkan said.  “Coles unconditionally apologises and accepts full responsibility for its actions in relation to these five suppliers,” Mr Durkan said

Future conduct

Mr Durkan said “since these incidents occurred in 2011, Coles has taken many steps to both improve its relationships with suppliers and help its suppliers grow”.

Mr Durkan said Coles had implemented a best practice compliance framework to ensure that it treats suppliers in an open and fair manner. He said Coles had also been a “leading voice” since 2013 in the industry-led drafting of the Food and Grocery Code of Conduct, which is currently with the Federal Government.

Australian Food News reported in August 2014 that Coles had established a Supplier Charter with the aim of strengthening relationships with suppliers. The Charter is a formal commitment to deal in good faith with our suppliers and provides suppliers to Coles with a strong, independent and confidential dispute resolution process.

Coles said it has also begun moving, where possible, to long-term contracts such as the 10-year milk deal it recently announced with Murray Goulburn.

Mr Durkan said “Coles sincerely regrets and apologises for its conduct in these dealings”.

“Coles is absolutely committed to upholding the highest business standards and fostering a culture of fairness and decency with respect to all of its dealings including in relation to its suppliers,” Mr Durkan said.