A strategy adopted by Woolworths with the view to reduce a shortfall of $50 million in its half yearly profit has led the Australian Competition and Consumer Commission (ACCC) to launch a legal action against the supermarket giant. The ACCC has accused Woolworths of unconscionable conduct in its dealings with a group of 821 supermarket suppliers in accordance with the strategy.

Under the scheme, known as “Mind the Gap,” which has been designed and approved by the senior management members, Woolworths’ category managers and buyers contacted a group of 821 Tier B suppliers for payments. The estimated amount of these payments ranged from $4,291 to $1.4 million in a bid to waive the gap in its half yearly gross profits by Dec. 31, 2014.

"If behaviour such as we are alleging is industry practice then industry practice needs to change, suppliers can't be in a situation where they get arbitrary demands,” ACCC Chairman Rodd Sims said in a statement. "We were very surprised and very disappointed when Woolworths alleged demands surfaced late last year we were in court in relation to Coles and our proven unconscionable behaviour to their suppliers and that was all over the newspapers.”

The market watchdog has also alleged that the company was in a substantially stronger position than the suppliers when these requests were made. There also has been no contractual agreement between Woolworths and the suppliers to seek such payments. The ACCC alleged that either the company was unaware that it did not have such an agreement or was indifferent to whether it could legitimately request its suppliers for such payments.

Woolworths had sought an amount of $60.2 million from the Tier B suppliers and has managed to secure $18.1 million under the scheme.

ACCC has sought injunctions, which include an order that would compel Woolworths to repay the entire amount it acquired from its suppliers under the said scheme, a pecuniary penalty, a declaration and a cost.

The matter is expected to be heard on Feb. 1, 2016 before the Federal Court’s Sydney Registry.

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