AUSTRALIAN Competition and Consumer Commission chairman Rod Sims' disclosure that the competition regulator has escalated an investigation into the two big supermarket chains over possible anti-competitive behaviour towards suppliers is a watershed moment.
The competition regulator can demand that information be supplied to it in the formal investigation it is now running, so allegations that the supermarkets misuse their power in their dealings with suppliers will finally be thoroughly examined: it may in time come to be seen as the point at which the enormous power of the two retailing giants finally began to be reined in.
When Sims says that the ACCC is now investigating whether the "major supermarkets" breached competition law in their dealings with suppliers he is talking about Woolworths and Wesfarmers-owned Coles, the two chains that dominate grocery retailing in Australia.
In his statement to a Senate Estimates Committee hearing on Wednesday night he was careful not to say that the major chains have broken the law, and it is a fact that the use of market power is not illegal.
The misuse of market is illegal, however, and Sims says the ACCC had now collected consistent and credible allegations of several types of behaviour that, if proven, would show unconscionable conduct on the part of the major supermarket chains in their dealings with their suppliers, or show the misuse of market power, in the form of discrimination by the big chains in favour of their rapidly proliferating home brands.
Claims that the big supermarket chains ride roughshod over their suppliers have existed for years (and been consistently rejected by Coles and Woolies) but this is the first time the competition regulator has collected enough information to launch a full-scale investigation.
An earlier examination by the ACCC when it was led by Graeme Samuel concluded that there was workable competition between the big supermarket chains, but it received very little usable information from suppliers about anti-competitive behaviour by the big chains towards them.
Even if they are fairly dealt with by Coles and Woolies, suppliers depend on their custom for their own commercial viability in this country. They are scared to risk damaging their relationship by levelling detailed allegations of anti-competitive behaviour, and after Sims decided early last year that the ACCC would examine the big supermarket chains again he hit the same roadblock.
Claims that supermarkets were acting oppressively were mounting by the time Sims decided to take a look - the supermarket milk price war had by then begun - and in Canberra politicians including the then manufacturing minister Kim Carr were calling for action.
No suppliers were, however, initially willing to break cover and take their concerns in detail to Sims. They were scared of the consequences, Sims said in his statement on Wednesday night. "Whether or not that fear was justified, it was certainly held by the suppliers we spoke to," he said.
The circuit-breaker was a decision by Sims to offer any supplier that came forward complete confidentiality. A total of about 50 small and medium-size suppliers eventually made contact and alleged behaviour that Sims told the Senate Estimates Committee would amount to either unconscionable conduct or misuse of market power if proved.
The alleged behaviour is not necessarily identical across suppliers, product lines or even supermarkets, Sims said, but it includes:
■ Persistent demands for additional payments from suppliers, above and beyond those originally negotiated.
■ The imposition on suppliers of penalties that do not form part of their negotiated terms of trade, and do not reflect any actual costs incurred by the big supermarket chains.
■ Threats to remove products from supermarket shelves if extra payments or penalties are not paid.
■ Failure to pay prices agreed with suppliers.
■ Conduct that discriminates in favour of the supermarkets' home-brand products.
The confidentiality guarantee that Sims gave the group of 50 small and medium-size suppliers that came forward was what enabled the ACCC to harden up anecdotal reports about misbehaviour by the supermarkets, and Sims has the confidentiality undertaking in mind as he moves now to a formal investigation. The ACCC will not be relying on any of the information it has collected in confidence so far from the group of 50 if it decides to take action against the supermarket chains.
Instead, it will be using investigative powers triggered by the move to a full investigation to compel suppliers to give it information, with the aim of building evidence it can use, if necessary.
Sims told the Senate committee the commission had identified "a number of suppliers who are likely to have relevant information".
It will be reinterviewing some of the group of 50, but expects that the bulk of the information it compiles will come from new and, in most cases, larger suppliers who have not so far come forward.
Work by a group that includes Coles, Woolworths, the Australian Food and Grocery Council and the National Farmers' Federation on an industry code of conduct that would be enforceable under the Competition and Consumer Act was continuing, he noted, but that would not head off the investigation, and any action the commission subsequently takes.
The next stage of this probe will be interesting.
Sims will be pulling in suppliers that are bigger, more powerful and operating on much fatter profit margins than the group of 50 smaller companies he has heard from. The power dynamic between them and the supermarkets is different.
He will also be aware that the supermarkets have actually been in a war that has been driving the prices of staples, including milk and bread, down.
The pivot of Coles and Woolies' market power is likely to be laid bare, however, and Coles and Woolies know it.
They routinely examine how they are dealing with suppliers as part of their own compliance regimes, but are looking much more closely now.