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Unconscionable conduct proceedings

On 5 May 2014 and 16 October 2014 the ACCC instituted proceedings against Coles alleging that on a number of occasions in 2011, Coles contravened the Australian Consumer Law.

December 2014

After being presented with the ACCC’s claims, Coles has extensively reviewed the materials made available by both the ACCC and its own internal investigations.

Today, Coles has made a number of admissions of unconscionable conduct in relation to certain dealings in late 2010 and 2011 with suppliers.

Coles Managing Director, John Durkan, said “Coles unconditionally apologises and accepts full responsibility for its actions in these supplier dealings.

“I believe that in these dealings with suppliers, Coles crossed the line and regrettably treated these suppliers in a manner inconsistent with acceptable business practice. We will await the Judge's decision in these matters.” Mr Durkan said.

Mr Durkan said “ACCC Chairman, Rod Sims, said at the time of launching this action ‘the alleged conduct was contrary to the prevailing business and social values which underpin business standards that apply to dealings with suppliers’. In the dealings we have identified, I believe that statement is appropriate.”

The first ACCC proceeding into the ARC supply chain program
The first ACCC action related to allegations in respect of a supply chain program in 2011 titled Active Retail Collaboration (ARC) in relation to Coles' smaller suppliers. As part of ARC, suppliers were asked to pay an ongoing rebate, in return for collaborative planning and greater data sharing, through access to the Coles Supplier Portal and changes to ordering quantities to ensure they were economically efficient.

Coles recognises the importance to its suppliers of best practice business conduct. However, at times during the business negotiations in respect of the ARC program, Coles acknowledges that it fell considerably short of these standards and the reasonable expectations of suppliers.

Coles has identified with the ACCC, dealings with a number of suppliers where its conduct was unacceptable and has made a number of admissions. In these particular dealings, Coles was not respectful of supplier needs for full and timely transparency, and of the responsibility attached to Coles’ bargaining power. Coles now awaits the Judge's decision on these matters.

Coles has proposed an Undertaking to the ACCC to establish a formal process that will allow any Tier 3 supplier in ARC to seek recourse should they believe they have not received benefits from the program commensurate with the costs incurred. This process will be led by an Independent Arbiter and be conducted confidentially, with suppliers assisted by an independent auditing firm. The costs of this process will be borne by Coles and Coles will be bound by the decisions of the Arbiter. Mr Jeff Kennett AC, who performs the role of Independent Arbiter under the Coles Supplier Charter, has agreed to undertake this role.

The second ACCC proceeding relating to late delivery, waste and profit gap claims
The second ACCC action related to allegations in respect of communications and negotiations in late 2010 and 2011 with a number of suppliers about the failure to deliver products, as well as claims for waste and damage to products and profitability of products.

With regard to these proceedings, Coles has identified dealings in relation to a number of suppliers in 2011, where its conduct fell short of accepted business standards.
Coles has made admissions of unconscionable conduct in relation to each of these dealings and will await the Judge's decision.

Mr Durkan said “these suppliers were not treated with the transparency and respect that they should be able to expect.

“Coles unconditionally apologises and accepts full responsibility for its actions in relation to these five suppliers,” Mr Durkan said

Future conduct
Mr Durkan said “since these incidents occurred in 2011, Coles has taken many steps to both improve its relationships with suppliers and help its suppliers grow”.

Coles has implemented a best practice compliance framework to ensure that it treats suppliers in an open and fair manner.

Coles has been a leading voice since 2013 in the industry-led drafting of the Food and Grocery Code of Conduct, which is currently with the Federal Government.

Coles has established a Supplier Charter with the aim of strengthening relationships with suppliers. The Charter is a formal commitment to deal in good faith with our suppliers and provides suppliers to Coles with a strong, independent and confidential dispute resolution process.

Coles has begun moving, where possible, to long-term contracts such as the 10-year milk deal it recently announced with Murray Goulburn.

In addition to these measures, Coles will now also adopt an independently-run six-monthly training program for all buyers on best practice commercial dealings. This program will commence immediately.

Mr Durkan said “Coles sincerely regrets and apologises for its conduct in these dealings”.

“Coles is absolutely committed to upholding the highest business standards and fostering a culture of fairness and decency with respect to all of its dealings including in relation to its suppliers.”


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