The Federal Court has ordered Woolworths to pay $9 million in penalties for its involvement in a laundry detergent cartel. Woolworths has admitted that it conspired with Australia’s biggest laundry detergent companies Unilever, Colgate-Palmolive and PZ Cussons over how they would all switch their formula from standard concentrates to ultra concentrates. Ultra concentrates are not only cheaper to produce but also cheaper to store and transport. The change to ultra concentrates would increase profitability margins for the companies.

The Australian Competition and Consumer Commission (ACCC) alleged that the agreement between the supermarket and the detergent companies meant such cost savings were not passed onto consumers. The cartel conduct may have cost consumers up to an estimated $150 million in lost savings.

Coming Clean

Woolworths was fined after it had admitted it was knowingly concerned in anti-competitive conduct. In 2009, Colgate-Palmolive began to halve the size of its product, while still maintaining its detergent’s price of the discontinued standard laundry concentrate. Later, an agreement was struck between Woolworths and detergent suppliers Colgate-Palmolive, PZ Cussons and Unilever, which together controlled 83 percent of the $500 million laundry detergent market. The agreement had the effect of pushing up prices for consumers for popular detergent brands such as OMO, Surf and Radiant.

Hung Out to Dry: Cartel Provisions

Consumer law in Australia prevents companies colluding together to achieve anti-competitive outcomes for other competitors or consumers. In this instance, the behaviour of Woolworths and the three detergent giants is considered cartel conduct, which the Competition and Consumer Act 2010 (Cth) prohibits.

Such anti-competitive conduct requires a contract, arrangement or understanding to exist with the purpose or effect of price fixing, restricting goods or services offered, market division or bid rigging. One of these four anti-competitive behaviours must be satisfied, in addition to the competition condition, to establish that cartel conduct has taken place. The competition condition requires evidence to be shown that the parties to the contract, arrangement or understanding are in competition with each other concerning the supply, acquisition or production of the good or service. In this instance, the three detergent suppliers would be seen as being in competition with each other. Holding 83 percent of the market, it is evident there is a misuse of market power here.

While cartel conduct is not permitted, the ACCC may grant an authorisation under s 88(1A) of the Act if it is satisfied that the provision of such an arrangement would result in a public benefit that outweighs detriment from the lessening of competition caused. For example, it is possible for the ACCC to authorise cartel conduct on public benefit grounds. This authorisation is unlikely to be granted in this instance.

Key Takeaways

The penalty imposed on Woolworths is the largest the ACCC has obtained against a party that was an accessory to breaches of competition law by being involved in anti-competitive conduct. It is important that businesses ensure their trading practices are in line with competition law. This responsibility not only lies with management but also the education of staff about risks involved in communications that may lead to anti-competitive conduct. Questions? Call us on 1300 544 755.

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