Wesfarmers share price drops 1% amid accusations of 'mafia-like' behaviour

Wesfarmers shares are having a rude return to trading this Monday.

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It hasn't been a great start to the trading week for the S&P/ASX 200 Index (ASX: XJO) and many ASX 200 shares so far this Monday. At the time of writing, the ASX 200 has slipped by 0.52%, and is back to around 7,748 points. But let's talk about what's going on with the Wesfarmers Ltd (ASX: WES) share price.

Wesfarmers shares are conspicuously underperforming the broader market so far this Monday. The ASX 200 industrial and retail conglomerate closed at $66.70 a share last week. But this morning, those same shares opened at a flat $66 and are currently trading at $66.14, down 0.84% for the day thus far.

Wesfarmers investors might be wondering why their company is so vastly underperforming the ASX 200 this Monday. Well, there's been no news or official announcements out of Wesfarmers itself that might explain this share price dip.

However, there has been a development reported that might be weighing on investors today.

Bunnings faces allegations of market share "abuse"

ABC News has reported today that the Wesfarmers-owned hardware chain Bunnings Warehouse is facing allegations from potted plant suppliers that the company is abusing its market power.

The report alleges that Bunnings is dealing with its plant suppliers "so [severely] that the resulting stress on nursery owners has threatened marriages and left some feeling like 'slaves' and 'serfs'".

One nursery owner told the ABC that selling potted plans to Bunnings was "unprofitable" and in some cases a loss-making exercise:

We have been virtually treated as serfs…They wound our business into the dirt… Bunnings is virtually a protection racket like the mafia… It's like legalised extortion and it should not be able to operate in a country like Australia.

Similar allegations were also reportedly aired at a Senate enquiry into supermarket pricing last week. On Monday, we also looked at what kinds of changes a government enquiry into the supermarket space might induce.

Although Bunnings is not a supermarket operator, it has reportedly been included thanks to its plant business.

Boomaroo Nurseries told the Senate that it had decided to cease selling plants to Bunnings, with the CEO Peter Smith describing dealing with the company as "tiring" and "draining".

Smith said that the nursery "broke even at very best" when selling plants to Bunnings. He also stated that "every time we requested a price increase, some kind of threat was made to make you feel like you're asking for something that's completely terrible".

Another nursery owner – Karen Brock – told the enquiry "We felt that we were slaves. We were slaves to Bunnings… It got to the point where our marriage was in deep trouble. Our business was in deep trouble". Brock has also stopped supplying to Bunnings.

Greenlife Industry Australia (GIA) has been lobbying Bunnings on behalf of small growers like Brock and has called for a mandatory code to protect suppliers.

Not all nurseries are calling foul

However, not all nurseries have had negative experiences dealing with the hardware chain. Brendan Haar from Haars Nursery told the ABC this:

We felt that some of the accusations that GIA were making weren't in line with the experiences that we've had with Bunnings… We've been supplying Bunnings since their first store. It's been a great relationship.

Bunnings itself has also come out and defended its business practices. The company's chief executive, Michael Schneider, released a statement last week that described the allegations against it as "absolutely at odds with the way we believe we do business".

He went on to state:

Assertions that we do not have contracts or that our team refused to make commitments or agree to price increases are simply not true. We're confident the two accounts don't reflect the views of the vast majority of our around 220 greenlife suppliers, more than half of whom we've worked with for more than 20 years.

Representatives from Bunnings will answer questions at the Senate enquiry today. It will be interesting to see how the company responds further to these allegations, and how investors treat the Wesfarmers share price accordingly.

Wesfarmers share price snapshot

Although Wesfarmers shares have taken a hit today, the company is still up a healthy 14.85% over 2024 to date. The Wesfarmers share price has also put on a pleasing 26.8% over the past 12 months.

At the current share price, this ASX 200 conglomerate has a price-to-earnings (P/E) ratio of 29.9, with a dividend yield of 2.94%.

Motley Fool contributor Sebastian Bowen has positions in Wesfarmers. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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