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'Change the law' on supermarkets

Australia needs tougher laws to deal with unfair competition behaviour by supermarkets, Senator Nick Xenophon tells 3AW's Neil Mitchell.

PT4M20S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-21lmi 620 349

SUPPLIERS to Woolworths claim they have been given two weeks to cut their prices by up to 10per cent or have their goods removed from  shelves — with no commitment from the supermarket giant to lower prices to consumers.

The squeeze on suppliers — described by one of them as "the most brutal negotiations...  in my three decades in the industry" — is being mounted by Woolworths to help fund its price war with Coles.

Independent senator Nick Xenophon, an outspoken critic of the combined 80 per cent market share of Woolworths and rival Coles, said yesterday he would be calling for Woolworths to be pulled before a Senate inquiry to explain its actions.

Woolworths has threatened to remove products from shelves if cost savings are not found.

Woolworths has threatened to remove products from shelves if cost savings are not found. Photo: Louie Douvis

Woolworths and Coles are already facing scrutiny from the Australian Competition and Consumer Commission which, The Age can reveal, has been contacted by more than 50 suppliers in response to its call for confidential complaints.

Five months after ACCC boss Rod Sims called on aggrieved companies to "dob in" the supermarket giants, suppliers to Woolworths have been told to slash prices by between 5 and 10 per cent, or face the prospect of removal from the aisles.

"We were told straight out to find a reduction ...  or we wouldn't be stocked any more," said a managing director of one company that supplies to Woolworths.

Industry body the Australian Food and Grocery Council this week issued a briefing note to its members advising them of the cost cuts sought by Woolworths.

The note said Woolworths justified the cuts by claiming it was "effectively subsidising unreasonably high profits in smaller companies".

Woolworths is believed to have used a consultant's report to justify the cost cuts, the letter said, but has not released details of that report to suppliers.

"In most cases ... companies have been asked to respond within two weeks to the request," the letter said.

Woolworths spokeswoman Claire Kimball said there was no two-week completion cut-off in its negotiations and "nothing unusual happening at the moment ... When we put our position to vendors we often ask them to come back to us in two weeks with their response. However it is a negotiation and this often necessitates ongoing discussions."

Ms Kimball added: "Negotiating terms of trade is something we do day in and day out. Any conclusions reached in negotiations have to be mutually agreed."

The grocery council also said it had  shared its concerns with Andrew Hall, director of corporate and public affairs at Woolworths, and Tjeerd Jegen, head of Woolworths' supermarket and petrol division.

Senior managers at Woolworths and Coles have denied claims they use their market dominance to pressure suppliers. The grocery council briefing, however, notes "the disconnect between commentary from senior executives within Woolworths and the behaviours of trading teams and buyers".

Yesterday, the boss of a major supplier told The Age that due to a recent loss of market share to Coles, Woolworths had been "using their dominant size in the industry as a blunt negotiating instrument to demand list price reductions.

"They have no interest in understanding the impact that their unreasonable demands would have on our business, but are using their 40 per cent-plus share of the market as a brutal implied threat," he said.

"This is only about boosting Woolworths' margins ... there has never been any discussion about passing the cost reductions onto consumers. These are the most brutal negotiations that I have experienced in my three decades in the industry."

The ACCC, after being contacted by more than 50 suppliers with complaints about the supermarket chains, said yesterday its confidential talks were progressing well. The watchdog is expected to report its finding by the end of the year.

Senator Xenophon said the 50 figure was just the "tip of the iceberg". He noted that ABC TV's Lateline had contacted 100 suppliers in vain to speak out publicly.

"The ACCC should urgently investigate," Senator Xenophon said. "I'll be calling for Woolworths to explain themselves as a result of this latest piece of correspondence."