But Coles has rejected allegations by the ACCC that it contravened Australian Consumer Law by acting unconscionably, using misleading information and applying undue influence to force suppliers to participate in the program. The ACCC took legal action against Coles in May following an 18 month investigation triggered by complaints from suppliers who alleged they were strong armed into joining the Active Retail Collaboration program. The ACCC has alleged Coles provided misleading information to suppliers about the savings and the value from the program and used undue influence and unfair tactics to obtain payments. Coles required suppliers to pay the rebate within days and if they declined, staff were told to escalate the matter to more senior staff and were threatened with “commercial consequences”, such as being forced off shelves or banned from promotions and new product development. The rebates ranged from about 0.7 per cent to more than 1 per cent of sales, depending on the size of supplier.

The ACCC also alleges that Coles took advantage of its superior ­bargaining position by seeking payments when it had no legitimate basis to do so, and requiring suppliers to agree to the ongoing ARC payments without providing them with enough time to assess the value of the benefits. Coles provided category managers with training, manuals and scripts – including threats to delete suppliers who refused to pay up – and awarded prizes to category managers who ­collected payments. In its defence, which was filed late on Monday, Coles said that participation in the ARC program was at all times voluntary. The retailer consulted with suppliers about the value of participating in the program and maintained trading relationships with suppliers even if they refused to sign up. However, Coles’ defence document suggests that the retailer used sanctions to secure the support of several suppliers who were initially reluctant to join ARC.

For example, on October 19, 2011 Coles told supplier Austech Products Pty Ltd that if it did not participate in the program it would withhold replenishment information available to other suppliers and it would order products “as and when required” rather than through a system known as economically efficient ordering. Austech finally agreed to participate in the ARC program. Coles has also admitted that it told confectionery and tobacco supplier Stuart Alexander it would be unable to discuss future new product development or “do anything new” with the supplier unless it agreed to participate in ARC.. Stuart Alexander later agreed to pay an extra 0.42 per cent of confectionery sales as a discount or rebate to participate in the program, but this offer was rejected by Coles. Coles then offered to provide Stuart Alexander with 26 weeks of sales orders if it agreed to pay a rebate of 1.01 per cent of sales.

Stuart Alexander finally agreed to join the program in return for paying 0.7 per cent of confectionary sales. Coles also admitted telling macadamia nut supplier Patons that suppliers who declined to participate in ARC would not have access to a supplier portal, where important sales data was shared. However, it denied allegations that it threatened to not promote Patons products or to buy any new grocery products from Patons. Coles admitted that it hired management consulting firm BCG to advise on supply chain changes, but denied that it hired BCG to develop strategies to boost earnings, saying the aim of ARC was to improve the availability and quality of products. Coles also admitted that BCG proposed that Coles ask “tail” suppliers for a “standard 1 per cent” of sales to share in the benefits from ARC.

BCG initially estimated the total “ask” from smaller suppliers would be about $30 million, but that was later revised to $16 million. Coles said that about 168 smaller suppliers agreed to participate in the ARC program and about 32 refused to take part. “Tier 3 suppliers who elected not to participate in the ARC program were not entitled to receive the ARC program benefits including the collaboration and supplier portal benefits,” the defence document said. “Coles continued to trade with all of the tier 3 suppliers who elected not to participate in the ARC program throughout the finacial years ending June 30 2012 and June 30 2013,” it said. The case is due to return to the Federal Court in Melbourne for further directions on August 1.