Coles acted ethically on supplier payments: McLeod

COLES was entitled to its profits and acted ethically when category managers sought payments, former Coles boss Ian McLeod said.

Former Coles boss Ian McLeod, who is still a director at Wesfarmers, is guest speaker at the QUT Business LeadersÕ Forum at the Hilton Hotel, Brisbane. Pic Mark Cranitch.

COLES was entitled to the profits it secured from its pool of food and grocery suppliers and acted ethically when category managers sought payments, former Coles boss Ian McLeod said in his strongest comments to date after the competition regulator last week accused the supermarket of unconscionable conduct. He defended the culture at Coles, both during his tenure as chief executive and now, saying the supermarket buyers who had day-to-day dealings with suppliers acted ethically.

Mr McLeod, who stepped down from Coles in July after six years at the helm to take a strategic role with parent company Wesfarmers, also told The Aus­tralian he was not acquainted with the terms “profit day”, “perfect profit day” or “profit gap” as detailed in the Australian Competition and Consumer Commission’s court documents and allegedly used by high-level Coles executives when extracting payments from unwilling suppliers.

“Those aren’t terms that I was particularly aware of at the time and I think the terms they used for these activities are just one-off words, I think,” Mr McLeod told The Australian. “I’m absolutely certain that the way we approach suppliers was professional and absolutely we operate ethically, and I do not believe there is anything systemically wrong in the way in which our (Coles) buyers conduct their business.”

The ACCC initiated court action last week, claiming Coles acted unconscionably in 2010 by forcing five suppliers to pay for gaps in the supermarket’s profit targets as well as wastage in stores.

In emails between senior Coles executives published in the ACCC’s statement of claim, supermarket category bosses used terms like “profit day” and “perfect profit day” to describe times ­during the year when they would contact suppliers with demands for payments.

The ACCC claims there was no legitimate basis to demand these payments.

Mr McLeod said the emails, and the “profit day” language, should be read in the context of the usual negotiations between Coles and suppliers, and that Coles was only asking for money it was entitled to.

“I think what you have to look at is the context of what was happening, and effectively what was happening was it was an administration day to make sure that (Coles) buyers tidied up their individual areas of responsibility to ensure the profitability that Coles was entitled to was brought in the way that it should have been in the first place.”

On Friday at The Australian and Deutsche Bank Business Leaders Forum in Melbourne, Mr McLeod defended the supermarket giant’s reputation in the face of the new allegations by the ACCC over its treatment of suppliers, saying the retailer would be vindicated in court when the case came to trial.

He wouldn’t be drawn on the five suppliers named by the ACCC in its new case against the supermarket group but said Coles under his watch had a strong and mutually beneficial relationship with suppliers.

“I can’t comment on individual cases; I’m not allowed to do it. The key factor here is the underlying relationship Coles has with suppliers and as far as I’m concerned — and it’s backed up with empirical and independent data — is that our relationship with suppliers has improved over the last five to six years, from being one of the worst in the industry to some of the best,” Mr McLeod said.

“And I can give you numerous examples of where suppliers we have actually built, grown and developed their businesses and they have benefited from the back of that.”

The ACCC allegations are yet to be tested in court.

Turning to his new role of group commercial director at Wesfarmers, where he is busy scouring the world for new opportunities for the conglomerate, including acquisitions, Mr Mc­Leod said investors wanted the company to take its time and not overpay on a deal — especially if it was an offshore purchase.

“We have spoken to potential investors and analysts and they have questioned the efficacy of us rushing headlong into an acquisition internationally without ­actually doing our homework to ensure we get an effective ­return,” he said.

“And they are absolutely right, so that’s certainly something that we are not going to do, but what we have to do is make sure that we are making decisions and not necessarily moving into a position where we are missing an ­opportunity.”

It is thought Wesfarmers could spend more than $5 billion on the right acquisition as its coffers fill with mountains of cash flowing from its retail businesses, led by Coles.

Wesfarmers is yet to do any significant deal and in the last year has showered its shareholders with special dividends and capital returns of more than $1.7bn.

“It’s very easy to spend money,” Mr McLeod said.

“It’s much more of a challenge to get a return from it.

“So we are not going to rush into anything, and certainly from some of the investment community I have spoken to, that’s not something they are advocating either.”