Woolworths to face court over ‘Mind the Gap’ scheme

The Australian Competition and Consumer Commission (ACCC) has instituted proceedings in the Federal Court against Woolworths, alleging it engaged in unconscionable conduct in dealings with a large number of its suppliers.

The ACCC alleges that in December 2014, Woolworths developed a strategy, approved by senior management, to urgently reduce Woolworths’ expected significant half-year gross profit shortfall by the end of the year.

The scheme, referred to as ‘Mind the Gap’, allegedly involved Woolworths systematically seeking to obtain payments from a group of 821 ‘Tier B’ suppliers to its supermarket business.

The ACCC alleges that Woolworths’ category managers and buyers contacted a large number of the Tier B suppliers requesting 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.

The ACCC also alleges that these 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 supplier.

The ACCC alleges that Woolworths’ conduct in requesting the ‘Mind the Gap’ payments was unconscionable in all the circumstances,” ACCC Chairman Rod Sims said.

A common concern raised by suppliers relates to arbitrary claims for payments outside of trading terms by major supermarket retailers. It is difficult for suppliers to plan and budget for the operation of their businesses if they are subject to such ad hoc requests.”

The ACCC alleges that Woolworths sought about $60.2 million in ‘Mind the Gap’ payments from the Tier B suppliers, expecting that while many suppliers would refuse to make a payment, some would agree to do so. It is alleged that Woolworths ultimately captured around $18.1 million from these suppliers.

The matter has been filed in the Federal Court’s Sydney Registry. The first Directions Hearing is set for February 1, 2016 before Justice Yates.