Is This Bribery? The Latest Supermarket Scandal in Australia

Power imbalances are nothing new in Procurement, but if and how we choose to act on them can be critical to long-term relationships.

If there’s one thing that we discuss often here at Procurious, it’s the need to go beyond the traditional procurement value-add of saving on costs. We should all be aiming that much higher when it comes to Supplier Relationship Management, with the goal of creating long-term supplier relationships that represent a win-win for both organisations. 

It might not always be clear what a win-win looks like, but recently we’ve seen what it most certainly does not look like. In the latest in a series of scandals plaguing Australia’s big name retailers, two major supermarkets have been accused of price gouging and the use of some questionable procurement techniques. 

Here’s what happened and what you can learn from the situation.

Price Increases … At a Price?

The last few years have seen some extremely challenging and unstable economic conditions. These have included, but certainly have not been limited to, COVID-related shipping costs increases, mass supply chain disruptions, and the most recent period of high inflation.

All of these cost pressures have led to a situation where suppliers will naturally have had to increase prices, something that procurement professionals globally are having to manage as best they can. Yet at some of Australia’s largest supermarkets, it has been managed in a less-than-ideal way. 

Recently, a multinational supplier to one of the supermarkets sought to increase their prices by 5%. Initially, the supermarket rejected the request, based on competitive factors, and also ‘customer needs’ (as in, the desire to not pass this increase on to customers for essential goods in an environment where there are already cost-of-living pressures). 

So far, so normal … although perhaps still not in the spirit of best-practice negotiation. 

But here’s where things got interesting. 

Although the supermarket initially rejected the price increase, instead of starting negotiations around the percentage or terms, they started negotiations on something else: compensation. 

The supermarket told the supplier that the increase would cost them hundreds of thousands of dollars, and that they’d need to be ‘compensated’ to close the ‘gap.’ To do this, they asked for a once-off payment of $25,000 AUD to be used towards online promotions. 

The supplier reluctantly agreed and paid the amount. And then, despite citing concerns around the price impact on customers, the supermarket passed the full increase on to customers anyway. 

The Role of Ethics and Power

Practices like these are part of ongoing investigations in Australia, where some believe that the big supermarkets, which account for nearly two-thirds of Australia’s grocery spend, simply have too much power. 

And the question of power, and what we do with it in procurement when we have it, is something that all of us need to deeply consider. 

The jury is out on whether the practice of asking for a payment as part of ongoing negotiations about price is considered bribery, or whether this simply represents the best outcome for the business, as it did with the supermarket giant in Australia, Is it ok, though, to secure the best outcome for the business, when the business’s customers are the ones that miss out? 

Increasingly, in the supply chain world, we are forced to ask ourselves: act ethically, or operate profitably? And while the choice was not that black-and-white for the supermarket, it begs broader questions about what the role of procurement really is, and whether we have a responsibility to do both the profitable thing, as well as the right thing, for people and the planet. 

Would you accept a payment as part of a negotiation for a price increase? Do you think the bad press that businesses receive for these types of negotiations is warranted or not fair? Let us know in the comments below.