Strategy to fill 2014 profit hole.
Woolworths will face court today after the Australian Competition and Consumer Commission (ACCC) alleged that the company developed a strategy to reduce a $50 million short-fall in its first-half gross profits by demanding more than $60 million cash from suppliers, outside formal trading agreements. The ACCC launched the proceedings in December 2015.
The ACCC proposed the following allegations:
- Woolworths developed a strategy, approved by senior management, to urgently reduce expected significant half year gross profit shortfall by 31 December 2014.
- Woolworths designed a scheme, referred to as “Mind the Gap” to systematically obtain payments from a group of 821 “Tier B” suppliers.
- Woolworths’ category managers and buyers contacted Tier B suppliers for amounts which included payments that ranged from $4,291 to $1.4 million, to “support” Woolworths. Not agreeing to a payment would be seen as not “supporting” Woolworths.
- Requests were made in circumstances where Woolworths was in a substantially stronger bargaining position than the suppliers, did not have a pre-existing contractual entitlement to seek the payments, and either knew it did not have or was indifferent to whether it had a legitimate basis for requesting a Mind the Gap payment from every targeted Tier B supplier.
- Woolworths ultimately captured approximately $18.1 million from these suppliers.
If the court finds against Woolworths, the retailer faces fines of up to $30 million and may have to refund the $18 million it successfully extracted from suppliers. The case commences on Monday before Justice David Yates and is expected to run for four or five days.