Woolies’ demand on suppliers haphazard and unreasonable’

The supermarket giant was “slapdash” when it demanded payments from suppliers, the Federal Court was told.

Supermarket giant Woolworths acted in a “slapdash, haphazard and unreasonable manner’’ when it demanded payments from suppliers to make up a shortfall in its own profits, the Federal Court was told.

It was also told that when Woolworths conceived the scheme it had not properly trained the staff who would be authorised to approach suppliers for payments so as to meet its own profit targets. The Australian Competition and Consumer Commission launched Federal Court proceedings against Woolworths, alleging it had engaged in unconscionable conduct in its dealings with a large number of its supermarket suppliers.

The watchdog alleged that in December 2014, Woolworths developed a strategy, approved by senior management, to make up a shortfall in gross profit for the first half of 2014-15 by demanding $60.2 million from suppliers.

The “Mind the Gap” scheme targeted a group of 821 “Tier B” suppliers to its supermarket business, seeking payments of up to $1.4m to “support’’ Woolworths, giving them just days to pay.

Norman O’Bryan, counsel for ACCC, told the court Woolworths had no contractual basis for seeking the money from suppliers but had maintained the payments were factual and “statistically based’’.

No provision for such payments was included in the company’s vendors’ guide or Woolworths’ own code of conduct.

“It was not a contractual bargain that was being entered into. It was a recovery for a past loss of profits Woolworths considered it had lost at the hands of its suppliers,’’ Mr O’Bryan told the court.

Judge David Yates heard that Woolworths demanded payments from suppliers such as multinational Mondelez, Vita Foods, Manassen Foods, Menorah Foods, Johnson & Johnson, Green Group, Valvoline, Warner Bros and 21st Century Fox. But many had “pushed back’’ and criticised Woolworths for being unreasonable.

Mr O’Bryan told the court suppliers had argued the payments being demanded were retrospective, did not provide a mutual benefit, were too late and did not take into account the actions of Woolworths that affected sales and margins of those products.

In one response to demands from Woolworths, a representative of Johnson & Johnson replied that one reason for its falling sales of men’s grooming products was that two of three brands had been deleted by the supermarket giant. “Woolworths made choices to back other brands,’’ the emailed response said.

In correspondence with Primo smallgoods over a $1.4m payment demanded by Woolworths, a company representative denied that the payments were designed to close a profit gap, and was instead aimed at “addressing the financial performance measures of your business”.

It was “very misleading’’ to say that, Mr O’Bryan said.

Mr O’Bryan also told the court that in discussions with suppliers, Woolworths’ “assault crew’’ made mistakes, including taking figures from a company spreadsheet and confusing basis points and percentage points in analysing gross profit and sales growth, which were among the lenses used to measure a supplier’s performance.

“It’s a complete misreading and misunderstanding of Woolworths’ own internal documentation.

“It indicates that Woolworths was approaching this in a slapdash, haphazard, unbusinesslike and unreasonable manner.’’

He also told the court that when suppliers refused to pay, Woolworths had allegedly threatened to and in some cases allegedly followed through with retaliation, including cancelling meetings and deleting product lines.

The court was told that senior management of the company, including Tjeerd Jegen and chief executive Grant O’Brien, were involved in devising the plan, briefing staff and setting targets to recover the money from the suppliers.

Instructions included an “escalation” of the matter to senior management of the company if suppliers rejected the demands.

Woolworths drew up plans to ask suppliers for up to 10 times the amount it expected to get under the Mind the Gap plan but discounted the actual amount based on the expected reaction.

Woolworths admitted seeking payments from its suppliers but said it was in the ordinary course of retailing.

Counsel for Woolworths, Cameron Moore, told the court the ACCC case was premised on a misunderstanding of standard retail practice.

Most of the terms on which parties dealt with each other were extra-contractual and included practices such as funding support for sale promotions, support for discounts and promotion in-store, payment for display and shelf space, stock adjustments, as well as financial adjustments in the supplier’s favour.

Suppliers and retailers had a common interest in a product doing well but a diverging interest in how the margin was split, Mr Cameron said.

He added that the cost of goods to Woolworths was the subject of “constant negotiation’’ over the year and that towards the end of the year it needed to be reviewed.

The hearing continues.