Coles has been ordered to refund more than $12 million to its food and grocery suppliers, after the ACCC found they were forced to pay extra to join the Coles supply chain.

Under Coles’ Active Retail Collaboration (ARC) program, the company forced suppliers to pay extra rebates, and even handed out fines for non-compliance.

In a statement this week, the ACCC said suppliers could now exit the ARC program without penalty or having their ARC contribution rebates reviewed.

The ACCC called in former Victorian Premier Jeff Kennett to arbitrate the dispute between Coles and more than 200 food and grocery suppliers.

Mr Kennett was asked to perform the role after he triggered an ACCC investigation in 2013, which looked at Coles’ claims that its bread was “freshly baked” when it was actually baked in Ireland, frozen, and shipped here.

In an interview with the online business media outlet SmartCompany this week, Mr Kennett said the new deal was a “major step forward” for Coles and its suppliers.

“It’s all about the outcomes rather than where you start – the outcome is Coles is developing a much better relationship with suppliers,” he said.

“Coles is in a strong position at the moment with good leadership, if they use these good times to improve relationships with suppliers it positions them well for the next decade.”

He said that while the outcome showed that large supermarkets and small suppliers share a “tough” relationship, especially in the initial price-setting stage, they can establish good working relationships.

“I’m not opposed to Coles being tough with suppliers with the price, but once you settle on a price, start to enter into strong relationships with suppliers, talking to them regularly, encouraging innovation,” Mr Kennett said.

“That’s where I see a great potential and upside, in actually getting suppliers to be more innovative.”

ACCC chairman Rod Sims said Mr Kennett’s instruction was instrumental.

“The arbitration process conducted by Mr Kennett has proven both extremely timely and effective with significant benefits to suppliers,” ACCC chairman Rod Sims said.

“The process will also deliver flow on effects for suppliers more broadly as a result of changes Mr Kennett says Coles has begun to implement that affect the way it deals with its suppliers.”