Small suppliers face “diabolical choices” when dealing with supermarket giants: Ombudsman

Small and family businesses can face “diabolical choices” when supplying the major supermarkets, Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Bruce Billson says, after an ABC expose levelled worrying claims about price-setting practices at the nation’s biggest grocery chains.

On Monday, Four Corners aired an investigation into the pricing practices of both Coles and Woolworths, which together command 65% of the Australian market.

While the report focused on household consumers, it also claimed that supermarkets impose hefty burdens on the grocery suppliers that choose to raise prices.

Four Corners reports a multinational supplier asked Coles to lift its in-store prices, in order for the supplier to meet its own rising costs.

The supermarket initially rejected the request, but later told the supplier it would enact the price hike if the supplier paid Coles to cover some of the revenue “gap” caused by the price hike.

After accepting a one-off $25,000 payment, emails obtained by Four Corners show the price hike was put into action.

Separately, Four Corners reported Woolworths asked a supplier to pay the supermarket a portion of the proceeds from a price increase — keeping the supplier from gaining the full benefit of the price hike.

The CEOs of both companies denied price-gouging activities, saying they only pass price hikes to customers where strictly necessary, and that supplier requests to lift prices are vetted before any changes at the checkout.

The report is backdropped by three concurrent reviews into the supermarket sector.

The first is a Senate review into supermarket pricing practices, followed by the Treasury’s independent review of the Food & Grocery Code of Conduct, a voluntary system that guides the behaviour of supermarkets including Woolworths and Coles.

The Code of Conduct was introduced in 2015 primarily to address the power imbalance between supermarkets and smaller suppliers, and the new Treasury review asks how to make it more effective.

There is also an upcoming Australian Competition and Consumer Commission review of the supermarket sector.

Speaking to SmartCompany, Billson said the Four Corners report is unlikely to be the last time Australia hears about the challenges facing supermarket suppliers.

In particular, he feared the “very real challenges and power imbalance faced by small and family food, grocery and horticulture suppliers dependent on dominant supermarket chains as their primary customer”.

The Food & Grocery Code of Conduct — which Billson was a staunch advocate for in his former role as Minister for Small Business — was “intended to address this imbalance” and ward off a “my way or the highway” stance from the major supermarket players.

But as supplier complaints over supermarket conduct are handled by the Code of Conduct’s independent reviewer, Billson said the ASBFEO has “little visibility” over its operation and continued effectiveness.

Billson said he has submitted his views to the ongoing inquiries “in the hope that small business suppliers have a legitimate opportunity to prosper and are not faced with diabolical choices that may harm their own business in order to keep a major supermarket chain as a customer”.