Woolworths Mind the Gap policy not “unconscionable”: Where does that leave small grocery suppliers?

Business groups are pessimistic about the future for small supermarket suppliers after the Federal Court ruled Woolworths did not engage in unconscionable conduct with suppliers in its “Mind the Gap” project.

In December 2016, the Australian Competition and Consumer Commission brought action against the supermarket giant, claiming it acted unconscionably in December 2014.

The allegations related to a scheme run in December 2014, which the ACCC alleged was formulated to close a profit shortfall in the business and through which buyers and managers contacted Tier B suppliers asking for “Mind the Gap” payments to “support” Woolworths, a move that raised $18.1 million.

In February, Woolworths admitted to asking for these payments but denied that the program amounted to “unconscionable” conduct.

On Thursday Federal Court Justice David Yates dismissed the ACCC’s claims, saying the practices were not unconscionable under the Australian Consumer Law.

ACCC chairman Rod Sims said in a statement that the commission will now be carefully considering the judgment, while also highlighting how the uncertainty caused by changing terms of supplier relationships can take a toll on businesses.

“If you’re a supplier subject to arbitrary demands, it’s very hard to make future investment decisions in the face of financial uncertainty,” he said.

In his judgment Justice Yates drew attention to the constantly changing nature of supplier relationships with retailers like Woolworths, the ACCC said in a statement.

“We defended the case because we firmly believed we did not act unconscionably and we did not break the law,” Woolworths chief legal officer and company secretary Richard Dammery said in a statement on Thursday.

Woolworths chairman Gordon Cairns took the fight to Sims, telling Fairfax the case had been a waste of taxpayer’s money and that he should not make comment on commercial practices.

“It is not the role of the chairman of the ACCC to determine what is or isn’t commercial behaviour,” Cairns said.

Read more: ACCC takes Woolworths to court for unconscionable conduct

What’s the message for SMEs?

The ACCC has focused on the relationship between the big supermarkets and their suppliers over recent years, and in 2014 Coles agreed to pay $10 million after admitting it pressured suppliers into ongoing rebate payments over 2010 and 2011.

The Commission says it will review the Woolworths judgment, but with few optimistic about the case being appealed, business groups see the decision as presenting a big challenge to small suppliers getting stable arrangements with the supermarkets in future.

Small Business and Family Enterprise Ombudsman Kate Carnell told SmartCompany the case is a reminder that “when it comes down to it, the court system is not small business friendly”.

“There seems to be nothing in the contracts that stopped Woolworths from doing [this] – and the court made the point that contracts change all the time,” Carnell says.

Proving that conduct is not merely unfair but unconscionable is incredibly difficult in court, and Carnell believes SMEs face a landscape that makes the changing nature of agreements very difficult to avoid. This is especially the case when the big regulators like the ACCC also face uphill battles of proving their concerns in the courts.

“This creates a new level of challenge for small businesses,” she says.

“I think the message it sends pretty strongly it is important to beef up the alternate dispute resolution system [for smaller businesses].”

Chief executive of the Council of Small Business Australia Peter Strong says the decision shows the position of big businesses in Australia getting what they want and when, often at the expense of smaller operators. These smaller firms can contribute significantly to innovation provided they are allowed on a level playing field, he says.

“It is time for the Australian Government to step up and take a lead on competition to support their aspirations for the largest employer of Australians – the small business sector,” Strong said in statement.

Carnell says it is concerning that nobody denied the supermarket asked suppliers for payments. It is also concerning that the end result is that while the situation may seem very unfair to many in the community, these cases are determined on more than the basis of what is unfair.

“It ends up needing to be proved legally, rather than morally,” she says.