"If behaviour such as we are alleging is industry practice then industry practice needs to change, suppliers can't be in a situation where they get arbitrary demands." Woolworths is aiming to stretch out payments to most of its grocery suppliers to 60 days. Credit:Dallas Kilponen "We were very surprised and very disappointed when Woolworths alleged demands surfaced late last year we were in court in relation to Coles and our proven unconscionable behaviour to their suppliers and that was all over the news papers. The ACCC alleges that in November and December 2014, Woolworths developed a strategy, approved by the former head of supermarkets and other senior managers, to urgently reduce Woolworths' expected significant half year gross profit shortfall of $50 million by December 31, 2014. The case caps off a horror year for Woolworths, which has downgraded profits three times and saw the announcement of the resignation of its chief executive Grant O'Brien as well as the departure of its chairman Ralph Waters and a string of senior executives.

The ACCC alleges that Woolworths sought approximately $60.2 million in so-called "Mind the Gap" payments from 821 of its Tier B suppliers, expecting that while many suppliers would refuse to make a payment, some suppliers would agree. It is alleged that Woolworths ultimately captured approximately $18.1 million from these suppliers to boost its profits. It is also alleged by the ACCC that, in accordance with the Mind the Gap scheme, Woolworths' category managers and buyers contacted the 821 suppliers and asked for Mind the Gap payments from those suppliers for amounts which included payments that ranged from $4,291 to $1.4 million, to "support" Woolworths. Refusing to make a payment would be seen as not "supporting" Woolworths. Woolworths representatives used a script to seek payments from suppliers within a four days of receiving the call, or at the latest by December 19, 2014, the ACCC alleges.

According to the ACCC's statement of claim the company did this "without regard to whether Woolworths had any other legitimate basis to seek the amounts" and did so purely to boost profit "and not to promote the sales of their Tier B suppliers products". Woolworths faces fines and other penalties if found to have breached consumer law. Woolworths claimed its conduct was consistent with Australian and international industry practice to "engage regularly with suppliers over product and category performance." It also revealed it had been fully co-operating with the ACCC during an investigation that has run for the last year. The ACCC is also seeking orders restraining Woolworths and its agents for a period of five years from seeking payments from suppliers in respect to any shortfall between the profit Woolworths was making from the sale of products and what it wants to make on a sale.

In December last year, at the same time that Woolworths' senior management approved the $60 million Mind The Gap scheme, Coles was fined $10 million in the Federal Court over unconscionable conduct in its dealings with suppliers in 2011. In addition to this penalty, Coles refunded suppliers more than $12 million after the supermarket giant provided a court enforceable undertaking to establish a formal process to compensate suppliers Earlier this week the ACCC revealed Woolworths and Aldi had written to over 1000 suppliers clarifying that suppliers are able to negotiate terms of the grocery supply agreements following the ACCC's concerns. As recently as September, the ACCC revealed it was investigating Woolworths and Aldi's new supply agreements over concerns the Food and Grocery Code of Conduct-compliant contracts could still be used to extract unreasonable payments from suppliers. The first directions hearing is set for February 1 2016 before Justice Yates.