Coles is facing millions of dollars in fines amid claims by the competition watchdog the supermarket giant tried to force “unconscionable” payments out of 200 of its small suppliers.
The ACCC has started legal action against Coles over a strategy it introduced in 2011 to boost its profit levels.
According to the commission, the company made changes to its supply chain including an overhaul of its web portal which it claimed made life easier for its suppliers.
The supermarket giant then set a target of $16 million in rebates that it wanted to get from its suppliers, arguing this was the benefit that had flowed to them from the supply chain improvements.
In a statement, Coles said it would vigorously defend the allegations made by the ACCC.
It said the company had sought to improve its supply chain to gain efficiencies that would ultimately benefit shoppers.
"It was designed to deliver benefits to Coles, suppliers and customers through lowering costs and improving availability of stock in our stores," the firm said.
Coles said its support for the Australian food manufacturing sector had never been stronger.
According to the ACCC, some suppliers were given just 24 hours to agree to pay a rebate back to Coles.
If they did not agree, Coles personnel were allegedly told to “escalate” the matter to more senior staff and to threaten commercial consequences if a supplier did not agree to pay the rebate.
Commission chairman Rod Sims said Coles was using undue pressure and unfair tactics to target suppliers while also using its superior bargaining position to impose itself.
“The conduct of Coles alleged by the ACCC in these proceedings was capable of causing significant detriment to small suppliers’ businesses,” he said.
“This could have resulted in these businesses becoming less able to plan and less able to innovate in the market, with resulting reduced economic efficiency and consumer detriment.”
The commission says many suppliers were simply given not enough time to assess whether there was any value in participating in the purported benefits of the Coles supply chain changes.
The company faces fines of up to $1.1 million for each breach of the Australian Consumer Law.
Mr Sims said the ACCC was continuing its investigation.