LegalVision Competition Law Update: Arnott’s, Coles and the ACCC

Tense negotiations between Arnott’s and Coles continue to dominate news headlines. Following Arnotts’ announcement of a 10% price increase, Coles removed several of Arnott’s products from its shelves, stocking only the “essential” lines.

Upsettingly, this means LegalVision employees will be forced to stomach Original Tim Tams, rather than Zumbo’s Salted Caramel for our afternoon teas. Although, Originals do make for better straws. In our competition law update, we step you the serious business of negotiating which Tim Tams to stock.

Coles’ actions represent a departure from more familiar supply disagreements. Typically, it is the suppliers crying foul. In 2014, the Australian Competition and Consumer Commission (ACCC) penalised Coles $10 million for unconscionable conduct against its suppliers.

In an attempt to mediate between the big supermarket chains and their suppliers, the Voluntary Food and Grocery Code of Conduct (the Code) came into effect in June this year.

Interestingly, the Australian Food and Grocery Council says the Colesworth duopoly is only the second most concentrated internationally. With the two powerhouses holding 78% of the market, it’s hard to believe that they lost the top spot.

The ACCC enforces the voluntary Code and requires participants to act:

• In good faith;
• Fairly and transparently in their commercial transactions with each other; and
• Ensure their staff receive sufficient training about the Code.

If a signatory breaches the Code, they will also breach the Competition and Consumer Act 2010 (Cth) (the Act).

Coles also retained the former Premier of Victoria, Jeff Kennett, to act as an independent arbitrator between it and its suppliers when required. Mr Kennett said on the record that as a result of the Code, he is being required less and less to intervene in negotiations as Coles changes the way it deals with its suppliers.

No Code can, however, eliminate the tough negotiations taking place between Arnotts and Coles. Essentially, as a purchaser, you do not have to deal with any supplier if you cannot agree on a price or other terms. Your duties as a buyer in negotiations with your suppliers, and vice versa are as follows:

• Do not act unconscionably;
• Do not mislead or deceive the other party; and
• If you have a substantial degree of market power, do not misuse it for the purpose of eliminating or substantially damaging a competitor, or preventing a new player entering the market.

ACCC Chairman, Rod Sims, is also on the record suggesting that the latest contretemps between Coles and Arnotts does not look to be in breach of the Code. Importantly, the Code does not prevent robust negotiations from taking place in supply dealings.