Supermarket chain Coles has no plans to ease up on discounting after admitting its treatment of more than a dozen grocery suppliers was “unacceptable”.
Coles has put paid to suggestions its offer to settle two major unconscionable-conduct cases brought by the Australian Competition and Consumer Commission could bring an end to the grocery price war.
Industry players said Coles’ admissions of unconscionable conduct and its offer to refund suppliers who were forced to pay extra rebates to fund a supply chain program could curtail its ability to extract further price reductions from suppliers.
However, Coles said its strategy was to continue to reduce prices for customers by funding reductions from cost savings, productivity gains and long-term supply agreements.
“We won’t step away from that commitment,” a spokesman said on Tuesday as the retailer waited to learn whether Federal Court judge Justice Michelle Gordon would consent to the terms of the proposed settlement.
“That’s our stated target, there are no bones about it – our strategy is to continue lowering prices and improving relationships with suppliers,” he said.
Industry sources have also suggested that suppliers beyond the 200 smaller companies involved in the Active Retail Collaboration (ARC) program could take advantage of Coles’ admissions to seek recompense for past wrongs.
As part of undertakings made to the ACCC, the retailer has established a formal process that will enable small suppliers to seek recourse if they believe they have not received benefits from the ARC commensurate with the costs.
The process will be led by former Victorian premier Jeff Kennett, who will appoint an independent audit firm to conduct a cost-benefit analysis for each of the 200 small participants. It will be up to each supplier to decide whether to seek reimbursement.
Separate to these undertakings, Coles has established a supplier charter and put in place measures whereby aggrieved suppliers can request an independent review of their dealings with the group. The dispute resolution process, which is also overseen by Mr Kennett, may enable more suppliers to seek refunds.
The Coles/ACCC settlement has further convinced analysts that a $1 billion profit transfer from grocery suppliers to the major supermarket chains may be coming to an end.
According to Morgan Stanley, supplier profits have fallen from $6.1 billion to $3.7 billion over the past few years, while Coles’ and Woolworths’ profits have risen from $3.1 billion to $4.4 billion. “The profit shift from suppliers to the major supermarkets – Coles and Woolworths – has been a considerable source of profit growth,” said Morgan Stanley analyst Tom Kierath.
“While Coles has been found in violation on this occasion, we understand that the ACCC is investigating similar actions by other grocers,” he said.
“As the Australian Food and Grocery Council implements the grocery code of conduct in 2015, we believe suppliers will have firmer grounds to stand on in dealings with the supermarkets.”