Supermarket giant Progressive Enterprises is turning the screws on its suppliers with a "no clash policy" imported from Australia. The policy financially penalises grocery suppliers for having their product promoted in rival supermarkets at or around the same time as Progressive's own advertised promotions. Should a clash happen, suppliers will be charged for the differential on the price offered in the opposition supermarket.
Progressive also wants details of suppliers' forward promotion plans with competitors. The practice so worries the Food and Grocery Council, it went to Auckland barrister John McBride for an opinion.
The council told its members to seek their own legal advice, but says it would counsel against accepting the policy. It has recommended they decline the request to share forward promotion plans.
Progressive's managing director Peter Smith said in a written statement yesterday that the company was not breaching any law when indicating to suppliers it would not accept promotions for inclusion in its mailers where there was a clash with a competitor's promotion arranged by the supplier. But nowhere did Smith address the policy's punitive element dropping the price of a product in a Progressive store to match that of a competitor, then back invoicing the supplier for the price difference. Nor did he address the cost to the supplier of having a product dropped from a promotions mailer at the last minute.
Smith said it did not make commercial common sense to enter into a promotion arrangement with a supplier at the same time or immediately following the same or a greater promotion by a competitor arranged by the supplier. "Having the same or a greater promotion in competitor's stores immediately before or at the same time defeats the purpose." Smith recognised the policy might require suppliers to revise marketing plans and said he was happy to work through concerns with suppliers.
In documents obtained by The Independent the grocery council's commercial director, Lindsay Davidson, told his 158 members that Progressive risked breaching restrictive trade practices under the Commerce Act.
The policy could also be seen as a prohibitive price fix when Progressive had "Select" or "Home Brand" competing in the same category, or horizontal pricing, in which it could be seen as trying to influence the retail prices of a competitor.
Progressive told suppliers the week prior and the week of a promotion in rival supermarkets such as New World would be deemed a "no clash" period. This means there must be no advertised clash on the same product or assortment of products as between a Progressive mailer and a competitor's mailer for the week of and week prior to the promo. In the event a supplier had a promotion at New World with prices lower than in Progressive stores, Progressive would lower the retail price immediately on the same product in its store. It would then back invoice the supplier for the difference, based on items scanned at the checkout.
Progressive runs Foodtown, Woolworths and Countdown New Zealand-wide and Fresh Choice and Super Value supermarkets in the South Island. Foodstuffs runs rival New World and Pak'nSave.
Foodstuffs managing director Tony Carter said he had heard about the new Progressive policy on promotions but his company did not practice it, nor had it ever been practised in New Zealand before. He warned suppliers if they breached confidentiality by tip-ping Progressive about its promotions "we would view it very seriously".
Suppliers spoken to by the Independent are furious about the practice and don't want to co-operate with it, but fear if they don't play ball their products will be left off the supermarket shelves.
The Commerce Commission said it had not received a complaint about Progressive Enterprises' 'no clash policy' and did not have sufficient information to determine whether or not the behaviour breaches the Commerce Act.
RUNNING A RULE
Auckland barrister John McBride has run his legal ruler over Progressive's "no clash" policy.
Remember, the policy means that if New World, owned by competitor Foodstuffs, runs a promotion on a product a week before one planned by Progressive's Woolworths stores, Progressive would not only pull the product from its promotional mailer, but would lower the product price to match the competitor, then deduct from its next remittance the difference for what it costs Progressive to match a lower promo price.
The key issues raised were:
Supplier volumes could be reduced because a supplier's product is removed from the Progressive mailer, damaging the benefit of going to the lower price point. If Progressive had ordered the product before it was left out of the mailer it could mean the product didn't sell, forcing Progressive to delay re-ordering.
A contract cannot unilaterally be varied unless by agreement, so it is unlikely Progressive could legally enforce a back invoice that reduced the pre-agreed supply price of promo goods. It would also breach this contract by removing it from the mailer.
Section 30 of the Commerce Act prohibits a price-fixing arrangement between competitors. "There is no cartel hatched in a smoke-filled room or secret phone calls between CEOs of competing businesses," says McBride. But the likely effect is a regime to make sure New World doesn't have a promo price when Progressive does.
There is a risk of a prohibitive price fix if there is no Progressive house brand in the product market. But it would be difficult for the Commerce Commission to demonstrate individual suppliers' vertical agreements with Progressive also amounted to horizontal understanding between those suppliers.
On a possible breach of Section 36 of the Commerce Act covering the misuse of market power, McBride said it was hard to bring home a case against a powerful supermarket over alleged "bullying" of suppliers. The supermarket could convincingly say it was enforcing the policy in the interests of delivering benefits of price, quality and choice to consumers, therefore it was not anti-competitive. But McBride said it would be very difficult for Progressive to characterise a "no slash" policy as being in the interests of consumers.
