The Australian Competition and Consumer Commission (ACCC) has started legal action against Woolworths for “unconscionable conduct,” alleging the supermarket sought $60 million in supplier payments to plug a profit gap.
ACCC is claiming that in December last year, Woolworths developed a strategy which was approved by senior management, to reduced a shortfall in half year profit by 31 December.
The strategy was a scheme called, “Mind the Gap”, designed to obtain payments from a group of suppliers, ranging from $4291 to $1.4 million to “support” Woolworths, and in not doing so would be seen as not supporting the retailer.
It is believed that $18.1 million was gathered from the suppliers.
“The ACCC alleges that Woolworths’ conduct in requesting the Mind the Gap payments was unconscionable in all the circumstances,” ACCC Chairman Rod Sims said.
“A common concern raised by suppliers relates to arbitrary claims for payments outside of trading terms by major supermarket retailers. It is difficult for suppliers to plan and budget for the operation of their businesses if they are subject to such ad hoc requests.”
The ACCC is also concerned that the requests were made in a situation where Woolworths had a stronger bargaining position and knew it did not have or was indifferent to whether it had a legitimate basis for requesting the payment.
The ACCC said it is seeking injunctions, including an order requiring the full refund of the amounts paid by suppliers under the Mind the Gap scheme, a pecuniary penalty, a declaration, and costs.
Last year Coles was ordered to pay $10 million in penalties after “serious, deliberate and repeated” misconduct with suppliers.
The supermarket giant was taken to the federal court after suppliers lodged overcharging and misconduct complaints with the ACCC.
“The alleged conduct by Woolworths came to the ACCC’s attention around the time when there was considerable publicity about the impending resolution of the ACCC’s Federal Court proceedings against Coles Supermarkets for engaging in unconscionable conduct against its suppliers,” Sims said.
“Of course, the allegations against Woolworths are separate and distinct from the Coles case.”
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