A PRACTICE known in the retail trade as "straight monies" is under scrutiny by the competition regulator and may be outlawed under a new industry code of conduct.
Retailers say "straight monies" or "co-operative funding" refers to a practice where suppliers are asked to divert part of their marketing budgets to a retailer's advertising activity, reports The Australian Financial Review.
However, grocery industry sources say the term also refers to a much- despised practice whereby a senior retail executive phones the managing director or chief executive of a major food or grocery supplier and demands millions of dollars to keep the supplier's products on its shelves.
The grocery executive then has to decide the best way to allocate the payment across their business.
The demands often occur at this time of the year, when retailers are approaching their fourth quarter and need to hit their profit targets.
One major supplier was contacted two weeks ago and asked by an unidentified retailer to pay $15 million or risk losing his position on supermarket shelves. That supplier is now considering giving evidence to the Australian Competition and Consumer Commission, which is investigating allegations of misuse of market power and unconscionable conduct by the major retailers.
In his address to the Senate Estimates committee last month, ACCC chairman Rod Sims revealed that he was exploring legal action against the retailers after being approached by about 50 grocery suppliers.
Mr Sims identified five key areas for concern, including demands for additional payments from suppliers above and beyond those negotiated in terms of trade, the imposition on suppliers of penalties that do not form part of any negotiated terms of trade, threats to remove products from supermarket shelves or otherwise disadvantage suppliers if claims for extra payments or penalties are not paid, and failure to pay prices agreed with suppliers.
Mr Sims declined to confirm on Thursday whether "straight monies" was one of the behaviours under investigation.
The ACCC has promised confidentiality to suppliers who voluntarily provide information about alleged unconscionable conduct by retailers.
It is also using its powers under Section 155 of the Competition and Consumer Act to force major food companies and retailers to hand over documents relating to their dealings.
A spokesman for Coles, which is said to have been "inundated" with Section 155 notices over the past few months, said on Thursday he was unfamiliar with the term "straight monies".
A Woolworths spokesman said the term was "not unknown, but the definition is quite different" to that described by supplier sources.
"Woolworths does not take part in the practice described," the spokesman said. At Woolworths, the term "straight monies" or "co-operative funding" is used to describe payments from suppliers who agree to divert some of their marketing budget to the retailer's in-store, point of sale, catalogue or other advertising programs such as magazines.
Under a proposed voluntary code of conduct aimed at managing sensitive supply chain issues and resolving commercial disputes, the "straight monies" practice described by suppliers may become a thing of the past.
The terms of the code of conduct are still under negotiation, but the underlying principles and processes have been agreed.
Under "good faith bargaining" principles, retailers would be prohibited from requesting conditions that are not reasonably necessary to protect legitimate business interests, using undue influence, pressure or unfair tactics, varying the terms of a contract without the prior agreement of the supplier, making retrospective claims without agreement, unilaterally changing supply chain practices that transfer cost and deleting a product without reasonable commercial grounds or reasonable notice.