Supermarket accused of bullying suppliers, terrorising sales reps

Friday, 7 June 2019

Powerful supermarkets continue to abuse their suppliers, including using tactics that would be illegal in countries like Britain and Australia, the Food and Grocery Council has told the Government.

It included claims that hark back to those raised in 2014, when Shane Jones, then a Labour MP, sparked a Commerce Commission inquiry when he claimed in Parliament that Countdown had been using 'Mafioso' tactics on suppliers.

The commission found Countdown had broken no laws.

But Food and Grocery Council chief executive Katherine Rich says in her submission on a government discussion document considering unfair commercial practices, that despite improvements in the treatment of supermarket suppliers since the furore , suppliers continued to be treated unfairly.

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The former National Party MP alleged that in some owner-managed supermarkets bullying of sales representatives was is so bad food and beverage suppliers withdrew their staff to protect their mental health.

'A minority of large owner-occupied stores have a general culture of bullying, intimidation, or penalising suppliers for non-cooperation,' Rich said.

'Reports of mistreatment of merchandisers (low-paid, mainly women), sales representatives and other company representatives is an ongoing concern.

'In extreme circumstances suppliers have had to move their staff due to concerns that poor treatment and its potential effects on mental health is a health and safety issue,' she said.

The claims were made as the Ministry of Business, Innovation and Employment gathered submissions on Commerce Minister Kris Faafoi's plan to introduce laws to protect small businesses from unfair commercial practices.

'I’ve heard the concerns raised by some suppliers about the way they are being treated by supermarkets and I am taking these seriously,' Faafoi said.

But, 'these proposals aren't about protecting any one sector in particular, because I've heard about unfair practices taking place across the economy.'

The council represents food and grocery suppliers.

Rich said New Zealand was an international outlier when it came to protecting small companies and contractors from unfair treatment at the hands of the dominant companies.

This was despite the country having some highly concentrated industries, including the supermarket industry, which was dominated by the Woolworths and Foodstuffs duopoly.

Woolworths owns Countdown supermarkets, Freshchoice and SuperValue. Foodstuffs owns Pak 'n Save and New World supermarkets.

'Some unfair commercial practices that would be likely to be illegal overseas frequently go unreported and unpunished in New Zealand,' Rich said said

'Over the past five years, [the council] has received first-hand reports of a number of clearly harmful practices.'

'In New Zealand's relatively small, tight-knit trading environment, even the risk of gossip or hearsay is enough to prevent suppliers from raising concerns,' she said.

While some unfair practices had ended after the 2014 spotlight was shone on the industry, others had continued, she said.

Gone were practices including supermarkets asking for retrospective payments to preserve margins, giving unreasonably short notice before stopping stocking items, or penalising suppliers who did promotions with rivals like The Warehouse.

But continuing practices included supermarkets taking an unreasonably long time to pay invoices, taking prompt payment discounts although paying late, seeking payments to cover shoplifting losses, refusing to accept price increases even when lifting shelf prices, threatening to stop stocking goods as a tactic in negotiations, and unilaterally imposing additional costs.

Foodstuffs spokeswoman Antoinette Laird said it was difficult to respond to the accusations as it wasn't clear which retailers were being accused.

'Some of the claims such as, not adhering to payment terms or demanding retrospective payments in the millions of dollars, equate to unethical behaviour and would simply not be tolerated by the Foodstuffs Co-operatives, Laird said.

'We would ask any supplier to come directly to our chief executives if there were ever any reported instance of this type of behaviour.

'The health of our supplier relationships is regularly reported to both companies’ boards,' she said.

More than 70 per cent of suppliers rated their relationship with Foodstuffs and good or excellent in a recent Food and Grocery Council commissioned survey, she said. 

She said Foodstuffs had a supplier partnership guidelines, and when the 'occasional' issue had been raised, Foodstuffs had acted swiftly and put corrective action in place immediately.

Countdown merchandise general manager Scott Davidson said it was important for the Woolworths group 'to have good relationships with both the local and multinational suppliers we partner with'.

The company had introduced a range of ways for suppliers to provide feedback, Davidson said.

'A number of the items raised in the submission are historic but nevertheless our approach is to continuously improve, he said.

Many powerful business groups are opposed to the proposed law changes, including banks, insurers, and the law firms that represent them, including raising concerns that it could lead to rising costs.

Law firm Russell McVeagh, which acted for Countdown during the 2014 Commerce Commission investigation, said the proposed laws would be one of the most significant changes to business law in recent memory.

'It is essential that any law reform is only introduced if there is clear evidence of a problem in New Zealand, and if it is established that intervention could benefit the economy as a whole,' the firm said.

It warned the that wide-ranging unfair practices prohibition would introduce significant costs for all New Zealanders.

Australia, where Countdown's parent company Woolworths operates, had introduced protections for small businesses in 2016, and had an enforceable grocery code of conduct which some current New Zealand supermarket practices expressly prohibited.

Britain also has a grocery code, and in April its grocery code adjudicator slammed the Co-op supermarket chain for failing to give suppliers reasonable notice of decisions to de-list products, and varying supply agreements unilaterally, and levying cash charges without reasonable notice.

Who else is complaining?

While there were many submissions, including from the banking and insurance industry bodies, claiming there was no need for the new laws, there were other alleging unfair practices in some highly-concentrated industries:

* Panel beaters complained insurance companies which offered work at 'artificially low' prices on a 'take it or leave it' basis, and they have no choice but to accept. IAG and Vero dominate the highly-concentrated general insurance market.

* Plastic surgeons reported being required by health insurers to accept 'unfair' contracts placing large administration burdens and costs on them. Southern Cross Healthcare dominates the health insurance market.

* Advertising photographers said they were required to sign onerous contracts, put up with late payments, and grant clients' perpetual worldwide usage rights for images with no compensation.

* The Hospitality Association complained about the power of the two dominant online travel agents, Expedia and Booking Holdings, which required accommodation providers to pay around 15 per cent commission for bookings and not to advertise their rooms for any less anywhere else.

* The Professional Drivers' Association complained of the unfair contracts contractor-drivers had to submit to, including one-sided termination clauses.