Woolworths did not violate consumer law through its Mind the Gap scheme in 2014, a federal court judge has ruled.
The Australian Competition and Consumer Commission (ACCC) took Woolworths to court over the scheme, which saw the retailer claim $18 million from suppliers to help reduce a $53 million shortfall in half-year profits.
But Justice David Yates said he was not satisfied that Woolworths engaged in unconscionable conduct.
Woolworths chief legal officer Richard Dammery welcomed the judgement.
“We defended the case because we firmly believed we did not act unconscionably and we did not break the law,” he said.
ACCC Chairman Rod Sims said the consumer watchdog took on the case because it was concerned the supermarket’s practice of seeking money from suppliers to fill urgent profit gaps “went beyond hard commercial bargaining”.
“[Woolworths] argued in the court that their behaviour was completely normal and how they do business,” he said.
“My dominant reaction is it really is unfortunate that Woolworths would regard such behaviour as normal and how they do business.”
Australian Food and Grocery Council chief executive, Gary Dawson said the Federal Court decision would have “lasting, negative ramifications for the food and grocery sector”.
“It sends a terrible message when a practice that’s tantamount to extortion is deemed acceptable and normal business practice,” Mr Dawson said. The ACCC has been ordered to pay a portion of Woolworths’ costs.
What is Mind the Gap again?
Facing a half-year profit shortfall of $53 million in late 2014, Woolworths executives drew up a scheme to hit suppliers for extra payments, called Mind the Gap.
Alex Dower, former commercial director of Woolworths, admitted in the Federal Court to holding a conference with his team of hundreds of buyers one day in December 2014.
The instructions were to clear their diaries and hit the phones to suppliers.
The buyers were given spreadsheets of sales with a series of lenses over the figures. They asked for retrospective payments from Tier B suppliers if they were underperforming or if Woolworths was not getting its share of increased sales.
More than 800 so-called tier-two suppliers were asked to pay between $4,291 to $1.4 million to “support” Woolworths in the weeks before Christmas, according to the ACCC.
The ACCC argued the supermarket giant used its strong bargaining position and ultimately captured $18 million from these suppliers.
The suppliers were given just days to pay and the ACCC told the court those not willing to pay were seen as “not supportive”.
Mr Dower conceded the demands were not written in the contracts, nor was there a legal base to ask for the money.
But he said it was common business practice at the time.
Buyers offered coffee and car park space
Woolworths buyers were plied with coffee and offered an incentive of Mr Dower’s car park space for a week.
“This was a bit of fun,” Mr Dower said. When the ACCC’s barrister Norman O’Bryan asked if the payments were effectively gifts from suppliers, Mr Dower was adamant.
“No absolutely not, they were not gifts,” Mr Dower responded.
He said he trusted his buyers to be “reasonable and make appropriate decisions” with suppliers.
In closing statements, Woolworths’ lawyers said the ACCC’s case was weakened for not bringing forth witnesses, but relying on email exchanges.
But consumer law expert Dr Alexandra Merrett said that was a deliberate strategy by the ACCC to tackle the system of the problem and not focus on a handful of disgruntled suppliers as with the Coles case.
Online Source: ABC.net.au.