A small Australian food manufacturer has described news that a Woolworths buyer has been sacked over an alleged kickback scheme as ironic given, Woolworths has demanded that suppliers conduct special two-day audits to ensure the suppliers are acting ethically.
According to a report in The Age, Woolworths has confirmed that it is assisting police with inquires into an alleged kickback scheme that involved suppliers paying a “promotional surcharge” of up to 20% to get their products on the grocery giant’s shelves.
Bill Harvey, Woolworths’ national buyer for coffee, tea and sugar, was arrested by police at the company’s Sydney headquarters on Friday, while detectives in Victoria arrested a retail broker over the alleged scheme.
Harvey was subsequently dismissed by Woolworths after an internal investigation.
“Woolworths confirms it has been working closely with police in relation to an investigation,” the company said in a statement.
“Woolworths takes such matters extremely seriously but due to the ongoing investigation, can make no further comment at this time.”
One small food manufacturer, who spoke on the condition of anonymity, says the reports are ironic given that Woolworths has asked suppliers to submit to so-called “ethical audits” which will require suppliers to provide information on their wage arrangements, the sourcing of raw materials and their business practices.
“Obviously Woolies has got to get their own place in order before they go out and target the manufacturers.”
The case has also raised fresh questions about the power of Australia’s supermarket majors Woolworths and Coles, and the lengths that grocery manufacturer are willing to go to get their products on the shelves.
The manufacturer SmartCompany spoke to says suppliers cannot survive without building strong personal relationships with buyers.
“The whole industry is so relationship-based it’s beyond a joke. For a small manufacturer, unless you have a relationship with someone it can really minimise your chances of getting sales.”
But don’t think for a minute that manufacturers like having their fate in the hands of buyers.
“Those buyers are so arrogant and they have complete control of your destiny. They can decimate a small business overnight.”
He gives the example of a buyer who demanded a special “new line support” fee of $20,000 when the supplier’s product finally got some space on the supermarket shelves. Rather than a special payment, the $20,000 was taken out of the sales generated by the product.
But the supplier received a shock when the product was deleted from shelves after just six weeks. He eventually got it back in stores, but was then told he still owed money on the “new line support” arrangement.
“They’ve got you by the testicles and they are not afraid to squeeze.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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