The competition regulator has announced it is suing Coles and Woolworths over allegations they misled shoppers by offering “illusory” discounts on hundreds of common supermarket products.
The Australian Competition and Consumer Commission (ACCC) chair, Gina Cass-Gottlieb, said on Monday the regulator would seek a “a significant penalty” after the major retailers allegedly profited from the sale of tens of millions of products sold through promotions the regulator claimed breached consumer law.
Coles told shareholders on Monday it intends to defend the proceedings, while Woolworths said it would review the claims.
So how did we get here?
What’s happened so far?
Promotional prices at Coles and Woolworths were misleading and a breach of consumer law, the ACCC alleged, because they were usually higher than the products’ regular long-term prices.
The regulator has used specific product examples in the case documents to show the brevity of the price spikes at Australia’s two major supermarkets – which control two-thirds of the market.
For example, Woolworths sold a family pack of Oreos for 696 days at $3.50, which the ACCC describes as its “regular price”. The price was hiked to $5 for 22 days, and then dropped to $4.50.
Shoppers were told they were getting a discount even though the price was 29% higher than the long-term regular price.
All up, 266 products sold at Woolworths followed a similar pattern, and 245 products at Coles, all of which had temporary price spikes of less than 45 days before being placed into promotions between 2021 and 2023.
What does the law say?
Jeremy Goldman, principal lawyer at Melbourne-based KCL Law, says when it comes to “was/is” promotions, interpreting consumer law is not an “exact science”.
“The critical issue is whether or not consumers would have, in fact, paid the ‘was’ price for a reasonable period of time before the sale commenced.
“The other question is what was the length of time that the product was previously offered for and was that a reasonable length of time.”
Goldman says the size of any penalty could be influenced by the precautions supermarkets took in their promotions – if they obtained legal advice, it’s possible they just made the wrong decision based on the advice provided, he says.
“But if the promotion was the ‘thought bubble’ of someone in the marketing department that did this without either obtaining legal advice or informing themselves of what the legal parameters are, that’s when you probably are going to receive a significant penalty,” Goldman says.
Coles said in a statement the allegations relate to a period of significant inflation when it was receiving a large number of price increases from its suppliers.
“Coles sought to strike an appropriate balance between managing the impact of cost price increases on retail prices and offering value to customers through the recommencement of promotional activity as soon as possible after the establishment of the new non-promotional price,” the supermarket said.
Woolworths said it was committed to offering many ways for customers to save, including through specials, own brands and its rewards program.
The chief executive of the Consumer Policy Research Centre (CPRC), Erin Turner, says while the courts will determine the legality of the promotions, there’s a separate question over whether the supermarkets have acted fairly.
“Great businesses don’t do this to their customers,” says Turner.
“Anyone who’s run a small business or had to work with people knows that you shouldn’t take advantage of others.”
Has this ever happened before?
Comparative pricing promotions have long been a focus for the ACCC.
In 2020, the federal court ordered Kogan to pay a fine over misleading customers about a tax time promotion in response to proceedings pursued by the regulator.
The online retailer had told customers they could use the code “TAXTIME” to receive a 10% discount on products at the checkout but had increased the product prices by more than 10% shortly before the promotion.
In 2019, four furniture retailers paid penalties for advertising a “was” price that either never existed or was only advertised for a short period of time.
Three years earlier, British clothing retailer Charles Tyrwhitt paid a fine after advertising a $69 shirt that “was” $160.
The retailer had advertised the “was” price “for a short period in a section of its website which was difficult to locate”, and no consumer had ever bought it at the high price, the ACCC said at the time.
What’s the problem?
Surveys conducted by consumer advocate Choicehave repeatedly shown that many consumers are confused by supermarket specials, with the “Down Down” and “Prices Dropped” promotions among those cited as a source of the problem.
Last year, Guardian Australia analysis found that Woolworths had a practice of briefly lifting the price of Nescafé Gold before discounting it and advertising it as a promotional item.
Anthony Albanese said on Monday if the allegations were found to be true it would be “completely unacceptable” behaviour by the supermarkets and that “specials need to be real, because household budgets are tight.”
The ACCC found in a government-ordered interim report separate to the legal proceedings that Australia’s major supermarkets provide broadly similar products, prices and loyalty programs in an oligopolistic market that may limit incentives to compete vigorously.
