29 April 2016
by Esther Han

'Project Mastermind': Colgate colluded with rivals and Woolworths to rip you off

Omo laundry powder is one of the brands alleged to have been involved as part of the cartel.

Household name Colgate has been found guilty of conspiring with two rivals and supermarket giant Woolworths to manipulate the laundry detergent market and rip off customers, in what its executives called "project mastermind".

The Federal Court on Thursday slapped an $18 million penalty on Colgate-Palmolive, saying it breached Australia's competition laws in its attempts to limit the supply and control the price of detergents.

Colgate-Palmolive is slammed with the equal third biggest penalty for cartel conduct in Australian history. Vision courtesy Seven News Melbourne Colgate had entered into a cartel arrangement in 2008-09 with competitors Unilever and Cussons, with the co-operation of Woolworths, to phase out standard concentrated laundry detergents by a certain date and bring in ultra concentrates, the court found.

All parties stood to profit because ultra concentrates are cheaper to make, store and transport. They agreed to not pass on savings to consumers.

Woolworths is alleged to have taken part in the laundry detergent cartel.

Colgate also admitted its executives shared sensitive market data with senior Unilever executives, including when they would lift prices. Affected brands include Cold Power, Radiant and Omo.

"The information sharing understanding involved phone calls between senior managers of competing companies, many of which started as social calls, but turned to unlawful exchanges of pricing information," said Rod Sims, chair of the Australian Competition and Consumer Commission, which brought the legal proceedings.

"Any contact between competitors carries risk and while discussion of price is particularly serious, there are many topics which may lead to an anti-competitive understanding."

The competition watchdog was tipped off by Unilever, which successfully applied for immunity under the ACCC's Immunity Policy for Cartel Conduct.

The heavy penalty against Colgate was comprised of $12 million for withholding supply, and $6 million for sharing sensitive information.

Despite the penalty being the third largest penalty the ACCC's achieved, Mr Sims said the personal care giant had received a "significant discount" because of its co-operation.

The giant grocer has missed an opportunity to revamp its culture, but investors should keep a watchful eye.

"We think it's a large penalty that sends a good deterrence message. We are trying to increase the size of penalties generally," he said.

"If you had some companies who have billions, the penalties can be large, and the fact this penalty was based on 10 per cent of turnover, this is the first time that's been done."

The ACCC's case against Cussons and Woolworths is listed for hearing in June 2016. The regulator is seeking pecuniary penalties, declarations, injunctions, compliance programs and costs.

Some of the cartel meetings were held at Woolworths' offices in Sydney. Other meetings were held in 2008 and 2009, including site visits overseas to North America, where the transition to ultra-concentrates was further discussed and planned.

It has also resolved its proceedings against former Colgate sales director Paul Ansell, who has admitted to being knowingly concerned in the same cartel conduct.

By consent, the court also ordered Mr Ansell be disqualified from managing corporations for seven years and pay a contribution of $75,000 towards the ACCC's costs.

An email obtained by the ACCC contained within its court documents shows the level of co-operation within the industry. The email, from a high-ranking Colgate executive to various Colgate directors and staff about the move to ultra-concentrates and industry co-operation, says: "We need to be sensitive to this industry desire to create a new charter for detergents, to be more sustainable and all other reasons.

"I do not care if it is ready tomorrow. That is not my issue. My issue is as an industry to work together, to maintain our credibility and not look suspicious."

The Federal Court also made other orders by consent that Colgate update its trade practices compliance program and maintain that program for three years and pay a contribution of $450,000 towards the ACCC's costs.

When a similar shift to ultra concentrates occurred in New Zealand, shoppers there enjoyed significant discounting, for example, paying the price of a smaller pack for a larger pack.

Mr Sims said it would be difficult for Australian shoppers to seek recourse because it was hard to calculate what exact gains were made.

A Woolworths spokesman said: "The outcome today relates to Colgate only. We are still before the court on the matter and as such it's not appropriate for us to comment."