Woolworths has defended its 2014 campaign to extract millions of dollars in payments from suppliers as entirely reasonable and common business practice.
The Australian Competition and Consumer Commission (ACCC) has alleged in the Federal Court in Sydney that Woolworths sought up to $60 million from its suppliers in the lead up to Christmas 2014, to help the company reduce its $53 million shortfall in half year profits.
It secured $18 million from suppliers.
On the stand to explain the Mind the Gap program, former Woolworths commercial director Alex Dower acknowledged his staff had developed the scheme.
Asked whether Woolworths had a contractual right or a legal right to instigate the payment, he answered no.
"So the payments were effectively gifts from suppliers?" ACCC senior counsel Norman O'Bryan said.
"No, absolutely not, they were not gifts," Mr Dower responded.
Payments covered costs, Woolworths says
The ACCC is arguing the payments by more than 800 suppliers were "dropped straight into Woolworths' bottom line".
But the former executive said it went to covering management, store and labour costs, and promotion.
Woolworths lawyers are arguing the payments were entirely normal for suppliers to keep their product lines stocked at Woolworths.
The ACCC alleges the company's buyers sought to extract between $4,000 to $1.4 million to "support" Woolworths, and if the supplier did not pay, they would be seen as not supporting Woolworths.
Woolworths is vigorously defending the allegations, saying "in a capitalist economy, there is nothing illegitimate about seeking to be profitable".
Woolworths' lawyers also are seizing on the fact that the ACCC is not arguing the supermarket buyers behaved in a "bullying way or thuggishly".
During cross examination, Mr O'Bryan put it to Mr Dower that, "Mind the Gap was a flagrant breach of Woolworths' own trading policy. Do you agree?"
"No I don't agree," Mr Dower responded.
'Not unconscionable conduct, just normal business'
Woolworths lawyers argue the ACCC case ignores common business practice of robust negotiations between retailers and suppliers, not just via emails, but also telephone and face to face meetings.
Woolworths' counsel Cameron Moore highlighted the example of coffee supplier Mondelez, which had a robust email exchange with Woolworths about who would pay $90,000 in promotional costs.
A Woolworths buyer wrote that the retailer had invested more than Mondelez in promotion, at the expense of the retailer's gross profit.
Mondelez responded saying it had not had enough time or money before Christmas to make up for the $90,000.
"It's a typical example of parties taking positions and resolutions where Mondelez had accepted the principle of the request and negotiated a lower payment of $25,000," Mr Moore said.
Subsequently, Mondelez did increase its promotional spending.
"This is not unconscionable conduct, this is normal business," Mr Moore said.
Woolworths rejects allegations it misused market power, saying that in many cases the food suppliers were larger companies — multinationals such as Colgate, Mars, Heinz, GSK and Arnotts.
Under pressure to answer whether he set tight deadlines in the days before Christmas, offering his staff inducements to meet their target of $10 million for the week, Mr Dower sat back and said, "We have to have targets. Every commercial operator has targets — it would be an odd business that did not."
The ACCC is seeking a full refund from Woolworths of $18 million to all 820 suppliers, and a fine.
The case is due to last until Thursday.
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