Woolworths’ supplier rebates under scrutiny at ACCC hearing

Questions have been raised about the impact of supplier rebates on Woolworths’ profit and executive bonuses at the second ACCC hearing into supermarkets that also included a notable surprise.

Naomi Sharp SC, council assisting during the ACCC public hearings into the supermarket sector.

The Australian Competition & Consumer Commission’s chair Gina Cass-Gottlieb has surprisingly been involved in the second day of the regulator’s hearing into supermarkets, joining with counsel assisting the inquiry, Naomi Sharp SC, to interrogate Woolworths about the link between supplier rebates and profits and bonuses for executives.

Questions were posed to Woolworths current chief executive Amanda Bardwell and former CEO Brad Banducci.

Ms Cass-Gottlieb, who in September launched a blockbuster court case against Woolworths and Coles over allegations the pair used fake or illusory discounts to lure in shoppers, was particularly interested in the matter.

She, along with Ms Sharp, queried who set these supplier rebate targets and how they were measured by senior Woolworths executives.

It was the second time the ACCC boss has turned up at the public hearings, having also questioned Woolworths executives on Monday to tag team questions from Ms Sharp.

ACCC deputy chair Mick Keogh had led the public hearings last week, but Ms Cass-Gottlieb made her surprise first appearance since Monday.

Ms Sharp, also after having a number of questions to Ms Bardwell not answered or referred to another Woolworths executive, became somewhat exasperated in the opening hours of the public hearing and asked if Ms Bardwell had “familiarised” herself with the key issues to be discussed at the hearing – and if she was aware of issues raised by other people appearing before the inquiry as she prepared for her own appearance.

Naomi Sharp SC, council assisting during the ACCC public hearing as part of its ongoing supermarkets inquiry.

Ms Bardwell responded she was “broadly aware” about the issues at hand but some other topics she didn’t have “specific” knowledge of.

Meanwhile, after the morning session – where Ms Sharp questioned Woolworths current and former executives about supply chains, self-service check-outs and loyalty schemes – she turned to rebates paid by food and grocery suppliers to Woolworths and the importance those rebates play in Woolworths setting earnings targets and incentives for senior managers.

Ms Sharp aimed her questions at former Woolworths supermarkets boss Natalie Davis, who has since left the retailer to become the CEO of Ramsay Health Care.

Ms Davis said she was unable to answer a number of questions around rebates and profitability targets or detail if she – as the supermarkets boss – was able to dive into the rebates paid by suppliers to calculate its impact on her division’s earnings.

Ms Sharp pushed further to ask why despite her running the supermarkets she couldn’t detail the breakdown of supplier rebates and the division’s profitability, Ms Davis again responded she couldn’t provide an answer and that this was an aspect of the balance sheet likely better known by Woolworths’ chief commercial officer or finance boss.

Woolworths chief executive Amanda Bardwell appearing before a ACCC public hearing as part of its ongoing supermarkets inquiry.

After further questioning on the matter, Ms Davis responded in a prickly fashion, “I think I have answered that question”.

Ms Sharp, who has led questioning at the inquiry for its last few weeks of public hearings, then turned her attention to Ms Bardwell, who explained again that as she has only been in the CEO role for 11 weeks, it wasn’t an issue she could provide further details about.

Ms Bardwell was announced CEO designate in February after Mr Banducci’s decision to step down later in the year.

Ms Cass-Gottlieb then joined in to ask the same questions of Mr Banducci – who has appeared before the hearings despite now being retired.

She asked Mr Banducci about the role of senior Woolworths managers to understand the contribution of supplier payments, or rebates, and how much detail a senior manager would have on those rebates being collected.

This was couched within the broader topic of Woolworths then calculating bonuses and remuneration for those senior managers based on the profit contribution of supplier rebates.

“For the short term incentive, we want to have a balance,” Mr Banducci said.

“Driving short term doesn’t lead to success in the long term, no one is having just profit as a key measure,” he added.

He said profit was one of the measures to test performance, but there were other factors such as supplier relationships, customers and sales with the Woolworths team always trying to “get the balance right”.

Ms Cass-Gottlieb asked Mr Banducci if senior managers had specific margin targets to deliver, to which he responded he would always look “at the overall result”.

“We always look at the puts and takes and what happens, but you do start with a budget.”

Later in the afternoon session Ms Sharp engaged in a prickly and terse line of questioning with the former boss of Woolworths’ supermarket arm Ms Davis over setting margins and negotiating price hikes with grocery suppliers.

Ms Sharp asked Ms Davis a number of times if margin was a critical or key factor or topic of conversation when negotiating price hike talks with suppliers.

Ms Davis explained it might be a topic of conversation but there were other issues too that needed to be addressed when talking about agreeing to price rises for food and grocery items from suppliers.

Ms Sharp, not happy with the answers, demanded a “yes or no answer” and a number of times Ms Davis responded prickly “I’ve answered the question to the best of my knowledge” and also “I feel like I’ve answered”.

An exasperated Ms Sharp repeated her questioning saying, I will ask “one more time” and demanded to know if profit margin was a topic of discussion when talking to suppliers about price hike requests.

Ms Sharp and the public hearing then moved on to the topic of packaged groceries and the bargaining power between Woolworths, a key channel for suppliers, and brand owners.

She put to Woolworths boss Ms Bardwell that because of the size and importance of Woolworths it was unlikely a supplier would “walk away” from the chain if it couldn’t get a price increase to cover costs.

Towards the end of the afternoon session the public hearing was switched to a private session as Ms Sharp sought answers on areas that were commercially sensitive or confidential such as Woolworths’ future pricing strategies and other commerical issues.

The hearing will continue on Thursday when execuitves from Coles, including its CEO Leah Weckert, appear before the inquiry.