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Unethical Practices of Woolworths & Role of ACCC

INTRODUCTION

Business ethics refers the ethical issues associated with the managing and operating the
business. The main objective of a business is to maximize its profit. But, a business is operated
within a social system. Thus it has been involved in many no economic activities also. Ethical
issues represent the interaction between economic and non economic activities. Adam Smith
said, People of the same trade seldom meet together, even for merriment and diversion, but the
conversation ends in a conspiracy against the public, or in some contrivance to raise prices
(Smith, 1952).
Government is usually able to explicitly regulate the activities of the business. On the other hand,
ethics can regulate the behavior of the business implicitly (Berle & Means, 1932). Organizations
lack of integrity about social issue has quickened the development of ethical regimes (Jones &
Parker, 2005).

ABOUT WOOLWORTHS

Woolworths is one of the largest grocery chain shop operated in the retail industry of Australia.
The chain is owned by Woolworths Limited. In 1924, it was founded and its first store was started
in Sydneys Imperial Arcade.

ROLE OF ACCC IN RELATION TO THE DEBATE OF WOOLWORTHS

Woolworths is widely criticized for dominating market through unethical practice such as price
gauging. The role of ACCC is to maintain the environment of better competitiveness within the
industry. For this purpose, it has announced to take necessary steps those will help to reduce
food inflation. Moreover, there is political pressure to take step against Woolworths (Durie, 2012).
The big supermarkets Coles and Woolworths are attacked by industry manager Kim Carr. These
supermarkets are claimed to push to boost their product sales in private level (Brett, 2012). He
insists that the market dominance of Woolworths should be investigated by ACCC. Other
supermarkets have also jointly raised their voice against the duopoly in the industry (Brett, 2012).
Though, the initial steps taken by ACCC was seems to be useful, the chairman of ACCC tried to
defend the super market giants. Graeme Samuel, the chairman of ACCC, said that he is confused
to link issues related to food inflation to their dominance in the local market. Certainly, it will
produce criticism about the role of ACCC, but still it is the duty of ACCC to monitor the activities of
the supermarket giants so that better practice can be ensured in the industry.

UNETHICAL PRACTICES OF WOOLWORTHS

Price Gouging and Geographic Price Discrimination


Woolworths was accused by a small business for price gouging. The business claims that
Woolworths is involved in price gauging in the west of Sydney (Smart Company, 2008). If was
found by Southern Sydney Retailers Association (SSRA) that there exists around 134% price

differential in different outlets in Greystanes and Fairfield. Woolworth made this price
differentiation to address the highly competitive market of Fairfield. Such discrimination of pricing
in different geographical areas is unethical and against the interest of the society. It only
maximizes the interest of the business.

Predatory Pricing & Loss Leading Pricing


It was found by SSRA that there exists around 134% price differential in different outlets. This
situation leads Woolworths to develop unethical practices and charging predatory price from the
customers.
To control predatory price, ACCC introduced new laws. In response to this law, one of the stores
of Woolworths has reduced the price of special price bananas from a $1.97 to 30 cents. In
indicates that Woolworths is involved in predatory pricing (Lohse, 2009).

Undue Influence on Suppliers


Moreover, Woolworths is also criticized for undue influence on its suppliers. It was found that
suppliers of Woolworths have been forced to accept post sales rebate. The suppliers were to take
periodic payment from Woolworths instead of considering the formal terms of the invoice (Jones,
2011).

Uncompetitive Behavior
Woolworths is involved in creating price war by reducing the whole sale price. It destroys the
environment of sound competition. Moreover, the price war has bad impact on economy and
productivity. Price war also reduces efficiency within the industry (Aldridge, 2012).

Discounted Petrol
Woolworths has got many loyal customers by its discount policy. Divers all over the Australia
believe that they are saving 4c to 8c per liter by using discount voucher of Woolworths. But the
real scenario is different. The actual discounts are only some fraction or sometimes zero (Beato,
2012). It was found by the Australian Automobile Association that the fuel price in super markets
is inflated. As a result, the derivers are pay more than the actual price even after getting the
discount. Thus, the discount is not ultimate bringing any welfare to the customers (Beato, 2012).

Cross Promotion of Liquor and Fuel


Woolworths has taken aggressive policy to increase its market dominance in alcohol selling. It
has made cross promotion and co-location to utilize its leverage as a supermarket retailer to
boost sale of liquor and petrol. This policy has negative impact in the market. The small retailers
are facing depletion for this policy (Independent Liquor Group, 2007).

RECOMMENDATION FOR WOOLWORTHS

It was stated in the corporate responsibility statement of Woolworths that it continuously monitors
the sentiment of the customers through researches. It also considers the issues those impact the
shopping behavior of the customers. Customers are the major stakeholders and Woolworths
should always value the customers. It is true that the main focus of the business is to maximize
its profit. But the profit maximization should not be by unethical means. The unethical practice

also reduces the confidence of the investors and other stakeholders on the business. Thus,
Woolworths should try to maximize the profit of the business and simultaneously it should ensure
ethical price throughout its operation.

BIBLIOGRAPHY
Smith, A 1952, An Inquiry Into the Nature and Causes of the Wealth of Nations, University of
Chicago Press, pp. 55.
Berle, AA & Means, GC 1932, The Modern Corporation and Private Property, New Jersey.
Jones, C & Parker, M 2005, For Business Ethics: A Critical Text, London.
Durie, J 2012, ACCC Chief Rod Sims Declares War on Woolworths and Coles Brett, L
2012, ACCC Called on to End Coles, Woolworths Duopoly as Small Business Suffers
FreshPlaza: Global Fresh Produce and Banana News 2009, ACCC Chairman Defends
Woolworths, Coles in Food Inflation Debate
Smart Company 2008, Woolworths Accused of Price Gouging
Lohse, R 2009, Taking on Woolworths
Jones, E 2011, Coles and Woolworths Duopoly Hard to Swallow
Aldridge, MM 2012, Australian Boycott of Coles and Woolworths
Beato, A 2012, Petrol Prices: Woolworths & Coles Fuel Discounts Exposed for the Lie they are
Independent liquor Group 2007, Petrol Price Inquiry