Businesses supplying products to grocery retailers or wholesalers have a number of protections under the Competition and Consumer Act 2010, which includes the Food and Grocery Code of Conduct.
In recent years, there has been considerable publicity about the conduct of grocery retailers when dealing with suppliers. This is due to the inequality of bargaining power between suppliers and grocery retailers, and the highly concentrated nature of grocery retail markets in Australia.
There have been claims that suppliers:
- have difficulty negotiating contract terms with grocery retailers
- are subject to unilateral or retrospective contract variations by retailers
- are forced to bear unfair risks (e.g. being required to pay for retailer damage to products)
- are paid late, or not paid the full amount for goods, and
- are unwilling to complain to the retailer or the ACCC because of fear of retribution.
The ACCC is aware of these concerns. Last year, the ACCC identified competition and consumer protection issues in highly concentrated sectors, including supermarkets, as an enforcement priority. This was reflected in a body of work including investigations into alleged conduct of grocery retailers. Most prominently, the ACCC instituted Federal Court proceedings against Coles, in which findings of unconscionable conduct towards some suppliers were made (see below for more details).
The Code is a voluntary code prescribed under the Competition and Consumer Act 2010. The Code was introduced to address unfair practices in the grocery sector. The Code seeks to deal with a number of the issues referred to above that were raised with the ACCC in its investigations and was developed in parallel with those matters being investigated.
The Code only applies to retailers or wholesalers that have elected to be bound by the Code, and governs certain conduct by retailers and wholesalers in their dealings with suppliers.
When dealing with suppliers, retailers or wholesalers must not engage in unconscionable conduct.
Unconscionable conduct does not have a precise legal definition as it is a concept that has been developed on a case-by-case basis by courts over time. Conduct may be unconscionable if it is particularly harsh or oppressive. To be considered unconscionable, conduct must be more than simply unfair—it must be against conscience as judged against the norms of society.
ACCC proceedings against Coles
In December 2014, the Federal Court declared, by consent, that Coles Supermarkets Australia Pty Ltd (Coles) engaged in unconscionable conduct in its dealings with certain suppliers.
The Court declared that Coles engaged in unconscionable conduct in the implementation of its Active Retail Collaboration (ARC) program by making threats of the following consequences if suppliers declined to pay the ARC rebate:
- a potential impact on Coles’ decision about the ranging of the suppliers products
- risks to promotional activity
- classification as a ‘transactional’ supplier, which may have implications for ranging
- Coles would not acquire new products from the supplier, and
- Coles would cease giving support to the supplier to maintain vendor replenishers.
The Court also declared that Coles engaged in unconscionable conduct in circumstances in which it had greater bargaining power than certain suppliers, including by:
- demanding payments for purported profit gaps from certain suppliers
- demanding retrospective payment for waste from a supplier
- requiring payment from a supplier for a late delivery where this had not been the subject of prior agreement, and
- imposing penalties for short or late deliveries of a product without notice to, or prior agreement with, a supplier.
The Court found that it was difficult to envisage circumstances involving a larger disparity in bargaining power, particularly as Coles was in a substantially stronger bargaining position with respect to each supplier.
Coles was ordered to pay pecuniary penalties of $10 million and costs, and has provided a court enforceable undertaking to the ACCC to establish a formal process to provide redress for over 200 suppliers. For further information on the case see the media release.
If a supplier has concerns that a retailer or wholesaler is engaging in similar conduct, they should contact the ACCC for a confidential discussion.
It is illegal for a business to engage in conduct that misleads or deceives or is likely to mislead or deceive other businesses (or consumers). This law applies even if the business did not intend to mislead or deceive anyone or no-one has suffered any loss or damage as a result of the conduct.
When deciding if conduct is misleading or deceptive, or likely to mislead or deceive, the most important question to ask is whether the overall impression created by the conduct is false or misleading.
If a supplier has concerns that a retailer is engaging in misleading or deceptive conduct, they should contact the ACCC for a confidential discussion.
A business with a substantial degree of power in a market is prohibited from using this power for the purpose of eliminating or substantially damaging a competitor, preventing a business from entering into a market, or deterring or preventing a person from engaging in competitive conduct in a market. This behaviour is referred to as ‘misuse of market power’.
If a supplier has concerns that a retailer is engaging in the misuse of market power, they should contact the ACCC for a confidential discussion.