- ACCC takes action against Coles over suppliers
- Coles case caps two years of investigations
- Elizabeth Knight: This watchdog bares its teeth
In August 2011 representatives of supermarket giant Coles approached energy drink maker Red Bull for a $200,000 payment in what insiders at the supermarket called, quite plainly, the ‘‘direct ask approach’’.
Indeed, Coles had calculated the value of the benefit to Red Bull of its improved supply chain at $400,000 but thought it would be a sport and only ask for half that amount from the beverages company.
The casual request for the cash was part of a pilot program where Coles sought payments from some of its key suppliers, and the biggest suppliers in the Australian grocery sector, to help pay for what it claimed was improvements to the supermarket’s supply chain.
In nearly 60 pages of stunning documents lodged with the Federal Court this afternoon, the inner workings of the nation’s second biggest supermarket group have been laid bare, forming part of the case launched against it by the competition watchdog this morning.
It started with a briefing to Boston Consulting Group whereby Coles asked the firm to help develop strategies to improve its pre-tax earnings.
Target: $30 million
According to court documents, a target of $30 million was chosen to squeeze from suppliers and even a script was written to help Coles representatives talk to their supplier accounts and to get them to hand over the cash.
The ACCC claims in its statement of claim that Coles did not provide any information to Red Bull as to how Coles arrived at the figure of $400,000 or $200,000.
But shortly afterwards Red Bull said ‘no deal’ and refused to pay $200,000 to Coles. It told Coles, orally and in writing, saying its total cost to serve Coles was less than the $400,000 that Coles said was the value to Red Bull.
But other suppliers seem to play ball. Ongoing negotiations with some of the biggest suppliers in the world were baring fruit.
Proctor & Gamble agreed to pay Coles on an ongoing basis a percentage amount of 0.45 per cent of the price Coles paid Proctor & Gamble for its grocery products, according to court documents, General Mills agreed a price of a 0.6 per cent payment. Swiss food giant Nestle refused to pay.
New Coles boss named
Recently appointed Coles boss John Durkan is named in the documents as being part of the rebate strategy the ACCC is focusing on. At the time he was in charge of merchandise and later chief operating officer. He is set to become the CEO of Coles in July when current boss Ian McLeod steps down.
The court documents also claim Mr Durkan was responsible for developing strategies to reduce costs to Coles of doing business and the Coles representative with primary responsibility for liasing with Boston Consulting Group in relation to the supplier strategy.
He also reported directly to Mr McLeod at this time when the ACCC alleges the unconscionable conduct by Coles took place.
The court documents, which form part of the ACCC’s statement of claim, carry huge slabs of emails and correspondence between Coles executives and suppliers, and include powerpoint presentations with tags such as ‘‘supply chain boot-camp’’ and detail how Coles divided up its suppliers in terms of size, creating tiers.
By September 2011 Coles had determined that it would ask payment from each tier 3 supplier on an ongoing basis of a 1 per cent rebate of the price Coles paid for the suppliers grocery products, the court documents say.
The rebate itself paid by suppliers would be divided into two components; an amount that represented the value to the supplier of accessing a supplier portal, and an amount reflecting value of access to ordering data.
The revenue target placed on these smaller suppliers, grouped in tier 3, was set at $16 million by Coles.
Four scripts for reps
The ACCC alleges in its court documents that when it came to savings for suppliers in terms of data sharing and ordering, four scripts were developed by the supermarket for its representatives to use on the grocery suppliers.
But the ACCC claims Coles had not identified or calculated any particular savings to these tier 3 suppliers in respect of data sharing, and that Coles had only assumed the value of ordering services and had not properly taken steps to establish if these savings reflected the actual value.
‘‘The script did not contain information that was adequate to enable a tier 3 supplier to understand the basis on which the data sharing component of the ..rebate.. had been determined by Coles,’’ the court document says.
As letters of demand were sent to these suppliers Coles is claimed to have monitored the reaction on a ‘‘tier 3 deal dashboard’’.
Mr Durkan, it is claimed, also kept an eye on the responses and was authorised for ‘‘applying pressure’’ to suppliers who refused to pay through ‘‘threat’’ or ‘‘imposition of sanctions.’’
Suppliers face 'escalation'
This was also called an ‘‘escalation’’ and the documents contain the names of a number of suppliers who faced ‘‘escalation’’ as they refused to pay and were deluged with emails requesting payments.
These suppliers who were subject to escalation included: Dulux Group, Yakult, McCormick Foods, Carman’s Fine Foods, Jalna Dairy and Spring Gully Foods.
By November 2011 the list of tier 3 suppliers who had been the subject of ‘‘escalation’’ from Coles for not paying rebates had grown to at least 38 and included Aussie Bodies, Frucor Beverages, Aspen Pharmacare and Nature’s Gift.
That ‘‘escalation’’ list quickly gew to 62 by the end of November 2011 and took in suppliers such as Maggie Beer Products, Weis Frozen Foods and Bic.
One supplier who fell foul of these payments and refused to pay, is alleged to have been told by a Coles representative that the supermarket would delay discussing whether Coles would aquire any new grocery products, would not promote the grocery products and would not participate in or delay participating in planning sessions with a representative of the supplier.
The threats were made in writing and orally, the statement of claim says.
In total the court documents list 200 grocery suppliers that fit into the tier 3 category designed by Coles and to whom the demand for payment was delivered.