There was a story over Christmas about Woolworths and the way they screw their suppliers, seemingly whenever and however they want. It is a story that has been coming in and out of focus for the last few years, and this latest iteration revolved around Woolworths alleging orders from up to five years ago were delivered short and demanding compensation from suppliers, unless they could prove the goods had been delivered in full.
It is a shocking misuse of their market dominance and a classic case of big businesses bullying smaller ones without consequence. And this lack of consequence should give pause to anyone labouring under the idea that the Federal Government cares about small business, or at least that they care about small business if their interests conflict with big business.
I feel especially bad for the suppliers in this instance as the same kind of thing has happened to me twice.
The first time was almost fifteen years ago. Our biggest customer at the time sent a letter to all their suppliers. They talked about what a good year they had enjoyed and how valuable their relationships with their suppliers were. They then demanded that we send them ten percent of our gross sales to them for the previous six months as a rebate. They explicitly made the point that while they could not enforce the rebate, any supplier who did not comply would go on the naughty list.
We ignored the letter and the threat. At the time my father still owned the business and, close to retirement, was not going to take that crap. But it was scary – they were sixty per cent of our business at the time and if they pulled their work we would have been in trouble.
The letter turned out to be a great thing. It thoroughly poisoned our relationship with the client and made us realise that we had been reliant on a customer who, while we thought they valued our work, really did not give a rats.
It made us look around for different corporate clients. The work we picked up meant we did not miss that particular client when they were sold twelve months later, to a company with a pre-existing contract with the world’s dodgiest print broker.
The second time happened a few years later. Another big corporate called me in and wanted a ten per cent rebate off gross sales paid to their purchasing department every quarter. Dismayed but by now jaded about our position in the corporate food chain, I complied.
Twelve months later they came back again, demanding twenty five percent. I told them no and gave them my bottom line pricing, to which they had me add twenty five per cent when charging to the business. This was then remitted back to the purchasing department quarterly. All above board and with the knowledge of senior management.
Why get me to overcharge their business units just to pay it back to head office? While I was never told explicitly, the effect was that the enforced higher costs to individual business units was increased, presumably making it harder for the managers (who were not allowed to know about the rebate) to meet their KPI profit targets. Presumably this made it much harder for them to get their commissions.
At the same time, the purchasing team’s bonus structure was built around how much rebate they could extract from suppliers. It was a straight transfer of performance bonus from the managers on the ground to the crew in the head office.
It was a crooked rort and when another printer offered to out-rebate us I didn’t lift a finger to retain the business. By then I had had enough of the company and was ashamed to be part of a scheme designed by an executive team to rob its own managers.
The media attention given to the Woolworths suppliers is great. Maybe it will force the ACCC or the Federal Government to do something about the way large businesses use their position to extract unfair margins from their suppliers. But it would also be great for any enquiry to extend beyond the supermarkets and look more broadly at the myriad similar schemes being cooked up by big businesses in every industry.
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