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31/10/16

16:59

Post #: 20259083
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Originally posted by footy ↑

Woolworths' used 'slapdash and haphazard' methods to fill profit gap, court told

Woolworths' attempts to extract payments from suppliers to fill a $50 million hole in its profits were "slapdash, haphazard, unbusiness-like and unreasonable", a Sydney court heard on Monday.
Counsel for the Australian Competition and Consumer Commission, Norman O'Bryan SC, told the Federal Court that under a scheme dubbed Mind the Gap, Woolworths senior management developed spreadsheets and scripts to be used by category managers and buyers to demand retrospective payments from "underperforming" suppliers in an attempt to fill a shortfall in its December-half profits in 2014-15.
However, some buyers and category managers misinterpreted or did not understand the data and scripts and demanded payments that were unreasonable and unjustified, giving suppliers just three or four days to pay.
If suppliers resisted, their case would be "escalated" up Woolworths' chain of command.

In one example, a Woolworths buyer asked Manassen Foods for $28,548, citing a decline in its trade spend and a fall in the gross margin Woolworths made from sales of Manassen's products - two of the four "lenses" Woolworths applied to identify suppliers who would be approached for Mind the Gap payments.

Mr O'Bryan said the buyer cut and pasted information from Woolworths' spreadsheets and scripts, mixed up basis points and percentage points, and came up with an inaccurate figure.
"She doesn't understand what the spreadsheet was telling her about the appropriateness of the ask," Mr O'Bryan told Justice David Yates.
"It's a complete misreading and misunderstanding of Woolworths' own internal documentation.
"It indicates that Woolworths was approaching this in a slapdash, haphazard, unbusiness-like and unreasonable manner.

"Woolworths told staff this was all statistical and fact-based ... [that they] are entitled to ask for this money because it's fact based and valid.
"We submit there was no proper basis of any sort because Woolworths made up these measures for itself. Woolworths never even bothered to instruct the people who were the frontline troops to understand the very material which they were going to make these asks of.
"Because every dollar they could extract from suppliers dropped straight to the bottom line to produce [its December-half] result. That's one of the major reasons why this exercise is unconscionable."
The ACCC alleged that Woolworths came up with the scheme in November to raise as much as $60 million from a group of "tier B" suppliers but managed to raise only $18 million.

This went straight to Woolworths' bottom line in the six months ending December 2014, in which the retailer reported a 7.3 per cent increase in food, liquor and petrol earnings.
"All this Mind the Gap was directed at producing the profit Woollies announced to the ASX on February 27, 2015," he said.
"There was no mention of Mind the Gap as having contributed any part of this result."
In another example, a category manager in toys rang and emailed Rob Sheaf, of 20th Century Fox, demanding $128,000 within three days, saying that while his sales had risen 52 per cent, Woolworths' gross margin from those sales had risen only five basis points.

"She doesn't understand what a basis point is," Mr O'Bryan said. "Lots of Woolies people didn't know what a basis point was."

Mr Sheaf responded that day, explaining his company's future plans for the category and offering to update her in two weeks.
"That's not good enough, given the urgency with which Woolies is demanding cash," Mr O'Bryan said.

The category manager wrote back immediately, reiterating her demand and telling him that if the company did not pay up she would escalate the matter to her manager.
Other suppliers who received demands included Capilano Honey, Mr Donut, a small Melbourne-based company that sells baked goods, Bon Vita, Ansell, Mondelez, Warner Bros, Danone and General Mills
One category manager, Jose Duke, demanded $250,000 from General Mills, saying its sales had risen 12.5 per cent, behind the target of 13 per cent, and gross profit margins were expected to rise only 2 basis points.
"He presumably means 2 per cent," said Mr O'Bryan.
Mr Duke demanded Danone pay up by the following day.
"We submit that kind of predatory deadline is unreasonable and unconscionable," Mr O'Bryan said.
Other suppliers, such as Menora Foods, KO, Primo Smallgoods, Rinaldi Pasta, Borg Foods and Nova Foods refused to pay, saying the extra payments were not part of agreed business plans or blaming a shortfall in sales or gross profits on decisions taken by Woolworths, such as deleting lines, reducing shelf space, cutting back on promotions, introducing rival brands or raising prices above recommended retail prices.
When some of these companies refused to pay Woolworths retaliated by cancelling meetings and foreshadowing range reviews.

"Woolworths was going to drag up the drawbridge from Nova Foods and simply not deal with them," he said.
Mr O'Bryan said no provisions for retrospective cash payments were included in Woolworths' Fair Trading Policy, its terms and conditions of trade with suppliers or the Code of Conduct signed that year.
"That Woolworths sought to seek Mind the Gap payments is a contradiction of that code of conduct," he said.
The plan went all the way to the top of Woolworths' then senior management team, including former CEO Grant O'Brien and former head of supermarkets, Tjeerd Jegen, who left Woolworths in January 2015.
The court heard that consulting firms McKinsey and Bain & Co were also involved, helping to "support" the team. One McKinsey executive wrote in an email she believed the plan was worth $20 million.
Woolworths has admitted tapping suppliers for extra money but says its demands were consistent with the "ordinary nature" of retailer and supplier relationships and common practice for supermarkets both here and overseas.
It has also rejected the ACCC's claim that it took advantage of its superior market power to put pressure on suppliers, saying many of the tier B suppliers approached were large multinationals such as Mars, GSK, Heinz, Colgate and Arnotts.
The retailer also claims payments were requested only from suppliers whose products underperformed - delivering weaker than expected gross profits - or who had cut back on trade spend such as rebates or marketing support.

Woolworths is expected to call past and current senior executives, including the so-called architect of the scheme, former commercial director Alex Dower, to back its claim that the payment demands were in order.
The case continues.

Read more: http://www.copyright link/business/retail/woolworths-used-slapdash-and-haphazard-methods-to-fill-profit-gap-court-told-20161031-gseiay#ixzz4OdgvDRZZ
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How much would WOW be fined?

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