Based on the progress of the negotiations with its biggest suppliers, Coles believed it had a reasonable basis for expecting the ARC program would deliver benefits to all of its suppliers and so it widened the negotiations to include another 50 of its larger suppliers and then, in October 2011, “invited” another 200 smaller suppliers – the tier 3 suppliers – to join the program, holding supplier forums to explain ARC to them.
The ACCC has alleged that ARC was a strategy by which Coles wanted to improve its earnings by extracting better trading terms from its suppliers and that to achieve its objective it provided them with misleading information about the savings they would achieve; used undue influence, pressure and unfair tactics to gain the rebates; gained advantage by using its superior bargaining position to seek payments where there was no legitimate basis for them and didn’t give the smaller suppliers sufficient time to assess the value, if any, of the ARC program.
So, Coles is arguing that the program involved real benefit to the suppliers; that the benefits were created by its investment in its supply chain and therefore it was entitled to a share of them; that the negotiations with the big suppliers demonstrated the benefits were perceived as real by them; that the program was voluntary and that the vast majority of the contact with the smaller suppliers was by the category managers rather than senior executives.
Before Coles began negotiations with them, however, it piloted the program with its largest suppliers, including Nestle, General Mills and Procter & Gamble in negotiations in May and June 2011 that took at least six weeks.
In fact, the 32 suppliers (out of the 200 tier 3 suppliers approached) who declined to participate in the program all still trade with Coles, albeit without access to its supplier portal and the claimed benefits that is said to generate.
Under the ARC program Coles asked its suppliers for rebates or discounts in return for giving them access to a data-sharing portal which, because it would lead to more economic and efficient ordering by Coles, was supposed to reduce the suppliers’ production costs, reduce waste and administration costs and transport costs.
In its defence Coles claims Durkan directed his general managers in November 2011 to ensure the ARC program was being implemented “in the right way” and to reiterate to the “team” that no sanctions were to be imposed or threatened on any tier 3 supplier that didn’t support the ARC program.
Read more here: Business Spectator