Woolworths plied buyers with coffee and offered a temporary parking spot to the buyer who extracted most cash from suppliers on a special day designed to fill a $50 million gap in Woolworths' profit, a court has heard.
Giving evidence to the Federal Court on Tuesday, the so-called architect of the scheme, Woolworths' former commercial director Alex Dower, admitted he asked his team to clear their diaries on a Tuesday in December for a 30-minute briefing.
Woolworths is being accused by the competition and consumer regulator of acting unconscionably by demanding more than $60 million in cash from "Tier B" suppliers outside of formal trading terms in the lead up to Christmas 2014.
The scheme, dubbed "mind the gap", resulted in Woolworths extracting $18 million from suppliers.
Mr Dower admitted he asked the buyers to check in with management every couple of hours to report on their progress and offered a prize to the buyer who got the most payment out of suppliers, but said it was to raise morale in a light-hearted way rather than to offer serious financial incentives.
The prize, in fact, was a chance to borrow Mr Dower's parking spot for a week.
"This was a bit of fun," Mr Dower said.
Woolworths also offered buyers free coffee throughout the day to "keep the team going" but there was nothing unusual about that practice, Mr Dower said.
"I don't think coffee is an unusual drink. I drink coffee regularly," Mr Dower quipped.
'Absolutely not' gifts
Mr Dower denied the ACCC's allegation that the mind the gap payments were effectively gifts from suppliers to Woolworths.
"Absolutely not," Mr Dower said.
However, he admitted that Woolworths had "no legal right whatsoever" to recover the monies from the suppliers because the demands were made outside of formal trading agreements.
In a robust exchange, ACCC's counsel, Norman O'Bryan, SC, said if suppliers demanded payments from Woolworths they would be told "they would be dreaming".
"It's perfectly reasonable for suppliers to ask for money from us," Mr Dower said.
For example, Coca-Cola would come to a half-year end or year end and they would ask Woolworths to take stock off their hands if they had experienced a bad sales period, he said.
However, he could not specifically recall what cash payments Woolworths made to suppliers.
'Asks were reasonable'
When asked what Mr Dower did to make sure Woolworths' demands to suppliers were reasonable, Mr Dower explained he trusted his team to make appropriate decisions.
"Buyers make decisions about this all the time. This is totally bread and butter for them," a frustrated Mr Dower said.
"I asked my team to make sure the asks we made were reasonable to suppliers. No one could be clearer than my expectations on what buyers should do.
"[I would say] here are some tools, here's some data but do it in the right way, as I always expect my team to do."
The court heard on Monday that some buyers misunderstood the spreadsheets and scripts provided by Woolworths' senior management and demanded payments that were unreasonable and unjustified.
Mr Dower is scheduled to fly back to England on Tuesday night after giving evidence to the court.
'Downright foolish'
Woolworths argued on Tuesday the mind the gap program was not "something special or unique" but rather it was a "focused or organised way" of making sure buyers and category managers monitor suppliers' performance which was already part of their day-to-day job.
Counsel for Woolworths, Cameron Moore, SC, said it would be "downright foolish" for retailers not to demand payments from suppliers from time to time because "it would abdicate the control over costs". This, in turn, could affect the ultimate price to consumers, he said.
Mr Moore rebuffed ACCC's argument the supermarket chain used "slapdash and haphazard" methods to fill a $50 million hole in its profits.
"Companies are allowed to use bargaining power to promote a capitalist economy," he said.
He also rejected the allegation that there was an "imbalance in the bargaining power" between Woolworths and suppliers.
"There are many products Woolworths has to offer in order to be a viable supermarket," he said.
At the time the mind the gap program launched, Woolworths had 37 per cent market share in the grocery retail sector.
But Mr Moore said that the view Woolworths had a large share of the market is "somewhat parochial" because some of its Tier B suppliers were sophisticated multinational companies such as Colgate, Procter and Gamble and Unilever.
One competition lawyer at a top firm said it would be a harsh outcome for Woolworths if it was found to have engaged in unconscionable conduct because there is "nothing horribly unusual" about having a robust conversation with suppliers in the hope of renegotiating commercial terms.
The case before Justice David Yates continues.
