The retailer sets aside at least one day a year called "Perfect Profit Day" when it set targets to recoup money from suppliers when profits failed to meet budgets, according to a statement of claim lodged in the Federal Court on Thursday Coles is also alleged to have forced suppliers to pay the cost of wastage and markdowns in stores, even when suppliers had no control over these issues, and fined suppliers for late and missing deliveries without justifying the cost. For example, when Coles's profit from selling Oates cleaning products fell short of budget by $326,590 in 2011, Coles demanded that Oates pay the retailer the same amount, without explaining how it came to the figure or how the profit gap had occurred. When Oates refused to pay the full amount immediately, Coles deducted $246,400 from a payment that was due to Oates without its permission, the ACCC alleges. Coates, which is owned by GUD Holdings, eventually agreed to pay $365,200 after Coles flagged a "range review". ACCC chairman Rod Sims has described this behaviour as the "most egregious" of "hundreds" of complaints made by suppliers against the major grocery chains over the last few years.

Coles rejected the allegations, describing its communications with suppliers as "normal topics for business discussions" between grocery suppliers and retailers around the world. A Coles spokesman said the allegations concerned a limited number of dealings three years ago with just five suppliers who continued to do business with Coles, The retailer, which has launched a Supplier Charter, also defended charging suppliers for wastage and late deliveries, saying stock-outs and high rates of spoilage frustrated consumers and pushed up prices. But the ACCC believes Coles's behaviour went beyond normal business practice or "robust" negotiations. "We believe that this behaviour is contrary to prevailing business values and standards," Mr Sims told Fairfax Media.

The ACCC says Coles took advantage of its superior bargaining position by demanding money when it knew it had no legitimate basis for doing so, failed to provide adequate information to suppliers to allow them to understand the basis upon which demands were made, and applied undue pressure by, in some cases, withholding money due to suppliers. The new allegations come five months after the ACCC accused Coles of unconscionable conduct by using unfair tactics and misleading information to force about 200 suppliers to pay extra rebates to fund the cost of a supply chain improvement program, Active Retail Collaboration. The new proceedings arise out of the same investigation but reflect the ACCC's concerns with Coles's day-to-day treatment of suppliers. "If the court agrees these allegations are proven, then both these actions [the ARC case and latest case] give the court the ability to define the appropriate business boundaries around dealings between large businesses and their suppliers," Mr Sims said. The ACCC is seeking pecuniary penalties, declarations, injunctions and costs.

Competition lawyers said the legal action was very fact-specific and the court's decision was unlikely to lead to widespread changes in retailer/supplier negotiations. "The court will be conscious of not getting in the way of normal business argy bargy," one lawyer said. The latest move is the sixth action taken by the ACCC against the big grocery chains in less than a year. In August, the commission took action against Coles, Woolworths and three other retailers, claiming they had fixed petrol prices by using a subscription-only website to co-ordinate prices. In June, Coles was forced to apologise for misleading customers by marketing pre-baked frozen bread as "fresh baked in stores."

And in April, Coles was forced to admit that it misled consumers by claiming that farm-gate milk prices had risen after it introduced $1 a litre milk when in fact they had decreased. Last December, the ACCC took action against Woolworths and Coles over excessive fuel discounts, forcing the chains to cap discounts funded by supermarkets at 4¢ a litre. Mr Sims said a draft grocery code of conduct agreed between the major retailers and suppliers late last year would help to eradicate some of the behaviour that the ACCC considers illegal. "If it's drafted the right way, it will be very helpful," he said. At an industry conference earlier this month Mr Sims aired concerns about loopholes in the code of conduct will could leave suppliers exposed.

The code of conduct is currently undergoing a regulatory impact review and is unlikely to be introduced until next year. Suppliers have also complained to the ACCC about Woolworths' behaviour and investigations are ongoing. The Australian Food and Grocery Council, which negotiated the draft grocery code with Woolworths and Coles, welcomed the ACCC's latest action. "In recent years there have been widespread reports of the practices described in the ACCC action being applied by the major supermarkets to boost their bottom line at the expense of suppliers. It is important that these allegations be tested in court," said AFGC chief executive Gary Dawson. Peter Hunt, a spokesman for the Victorian Farmers Federation, said the allegations raised "serious concerns" about Coles' conduct.

"This sort of behaviour, if proven, completely undermines the supermarket's efforts to gain farmer and suppliers trust," he said. "Once supermarkets have taken control of goods, farmers and other suppliers shouldn't be held liable for waste." Former Victorian premier Jeff Kennett, who was appointed 'independent arbiter' of suppliers by Coles in August, said he was unaware of the details but believed Coles would have changed its behaviour since then. "These are things that happened three years ago," he said. "I would imagine that would have been under a different administration at Coles."

"If the same thing prevailed, practices would have changed, hopefully they did." The small business minister Bruce Billson said it was important to have a strong watchdog prepared to test the law. "We want an economy where competition is based on merit, not on muscle," he said. with Georgia Wilkins