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Coles’ “unconscionable conduct” defence triggers further questions

Supermarket giant Coles has fanned further suspicion over whether it threatened suppliers into funding a new supply chain program through additional costs and ongoing rebates.

In a 34-page document filed with the Federal Court on Monday afternoon, the retailer rejected suggestions it had engaged in unconscionable conduct towards its suppliers.

But in responding to allegations levelled by the competition watchdog, the retailer also appears to acknowledge that it did employ particular tactics to secure the support of a number of suppliers for the so-called Active Retail Collaboration (ARC) program.

The Australian Competition and Consumer Commission took legal action against Coles in May following a lengthy investigation. In its statement of claim, the ACCC alleges the supermarket mislead suppliers over the savings and value of the program and gave them too little time to weigh up their options. It suggests that Coles tried to claim about $16 million in rebates from smaller suppliers since 2011.

Coles is alleged to have required suppliers to start making payments within days. If they declined, suppliers were then allegedly threatened with “commercial consequences” like being forced off shelves, or denied product development opportunities.

In its 34-page defence document filed with the Federal Court on Monday afternoon, the retailer rejected suggestions it had engaged in unconscionable conduct. It said participation in the ARC program was voluntary and defended its consultation with smaller suppliers about the scheme. It said that trading relationships were maintained with 32 suppliers who did not sign up.

However, Fairfax today reported the 34-page-document submitted by Coles accepts some of the facts in the ACCC’s statement of claim, including the involvement of consulting firm BCG and the use of prepared scripts used by staff to encourage suppliers to sign-up.

The media outlet also reported that Coles admitted it had told supplier Austech Products in 2011 that if it did not participate in the ARC program, it would withhold information available to other suppliers. Similarly, Coles reportedly admitted to informing consumer good distributor, Stuart Alexander, that it would not discuss future product opportunities unless it participated in the program.

Coles’ defence document said that suppliers who elected not to sign-up to the program were not entitled to receive its benefits. However, it said it continued to trade with them regardless.

Master Grocers Australia chief executive Jos de Bruin told Dynamic Business that he applauded the ACCC’s efforts in targeting the behaviour of Coles. He said the supermarket giant was engaged in “morally wrong” behaviour.

Mr de Bruin argued for the inclusion of an “effects test” in section 46 of the Competition and Consumer Act to prohibit conduct that had the effect of deterring a competitor or potential competitor. Currently, the existing law only prohibits conduct undertaken “for the purpose of” damaging a competitor.

“How are you going to get that sort of proof,” Mr de Bruin said of the existing provision. “It’s a lame duck.”