Coles ARCs up over conduct

17 Dec, 2014 01:00 AM
Since the 2011 ARC digressions, Coles has done a lot to improve its relationship with suppliers

CORPORATE Australia would do well to study the way supermarket giant Coles handled explosive allegations of "unconscionable conduct" that will include a review of up to 220 suppliers with combined sales of $660 million.

After initially denying any wrongdoing when the allegations were lobbed by the Australian Competition and Consumer Commission (ACCC) in May, Coles has opted to kill the bad publicity by pre-empting the outcome of a court judgement.

In a statement, Coles boss John Durkin did a full-blown mea culpa and admitted it had behaved badly to some of its suppliers. "Coles sincerely regrets and apologises for its conduct in these dealings".

It was a big victory for the ACCC on many fronts. While the $10 million fine is inconsequential for the supermarket leviathan, it has sent a message to all companies that such behaviour will not be tolerated. Coles has changed its processes and entered an undertaking to set up a formal review process to be headed by Jeff Kennett.

The review will be open to 220 suppliers with combined sales of $660 million to come forward if they believe they were treated poorly and suffered financially from a supply chain program known as the Active Retail Collaboration (ARC) scheme.

ARC was targeted at so-called tier three suppliers – defined by sales to Coles of an estimated $3 million – who were asked to pay an ongoing rebate in return for "collaborative planning" with Coles.

The decision to settle was no doubt partly inspired by the Commonwealth Bank's (CBA) handling of the financial planning scandal, which resulted in a senate inquiry and calls for a royal commission.

CBA was heavily criticised in the senate inquiry for blaming the scandal on a few rogue planners, rather than poor compliance systems and a management cover up, low balling compensation payouts to customers and trying to diminish it as something that happened in past.

It has since opened up a compensation scheme for aggrieved customers and its chief executive Ian Narev has apologised for the actions of the bank and not reacting fast enough.

But the spotlight on CBA broadened the public's attention to the entire financial planning industry and made it political. It exposed weaknesses in the standards of education and quality of advice, including the conflicts of interest in the vertically integrated model.

Given the supermarket giants have been dogged by allegations of bullying of suppliers, particularly in the past few years as they slug it out in the battle for market share and profit, Coles couldn't afford to keep the blow torch on such a politically sensitive issue.

Alleged market power abuse hit the headlines in early 2011 when Foster's took the surprising step of pulling tens of thousands of cartons of VB, Carlton Draught and Pure Blonde from trucks heading to Coles and Woolworths after learning of a promotion to sell beer at $28 a carton, at what Foster's argued was well below cost.

Over the past few years there have been the $1 milk wars, which caused a political storm and triggered a senate inquiry, bread wars and eggs wars. There have been accusations of misuse of shop-a-dockets, petrol prices and private-label brands being used to sell cheap foreign produce.

There have also been stories circulating by unnamed suppliers of "cliffing", a term used to describe a situation where a supplier is effectively asked to make a decision that is akin to standing at the edge of a cliff and agreeing to certain discounts. If they disagree, the impact on their business is deemed to be as catastrophic as being pushed over the cliff.

Since the 2011 ARC digressions, Coles has done a lot to improve its relationship with suppliers. It has created a Supplier Charter and set up an independently run six-monthly training program for all buyers on best practice commercial dealings.

It has also played a key role in drafting the Food and Grocery Code of Conduct to develop an industry code of conduct. The code is currently with the federal government. The clock is ticking, with heavy lobbying by the big two supermarkets for a release date before Christmas.

It is a code ACCC boss Rod Sims is also awaiting. In a recent speech he said a code of conduct that provides "clear rights and legally enforceable norms of conduct would be of considerable assistance to food and grocery industry participants". It would contain the supplier gouging hot potato.

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17/12/2014 7:42:04 AM

$10 million fine, what a joke. it is estimated that the dairy industry has lost $100 million because of the price war. there is no justice with these people. i still see coles milk on the shelf for a $1/L. whats going on there? is it still fine to screw the dairy industry even after admitting guilt? looks like it. coles is sorry. sorry for what? that they got caught. total spin on coles's behalf with its admission. shame coles, shame! and worse still the accc let them get away with it for peanuts.


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