Australia's two biggest supermarket chains will be hit with significant penalties if the consumer watchdog successfully sues them for fake discount schemes.
The Australian Competition and Consumer Commission launched legal action in the Federal Court against Coles and Woolworths, as the federal government flagged a draft mandatory code of conduct for the major supermarkets.
The watchdog claims both retailers bumped up the prices of products by 15 per cent for brief periods before moving them to promotions.
Woolworths' Prices Dropped and Coles' Down Down promotions then listed the goods at prices lower than the spike but higher than, or the same as, the initial price.
Commission chair Gina Cass-Gottlieb said the duopoly breached consumer law by making misleading claims about discounts when the discounts were, in fact, illusory.
"We are seeking a significant penalty, this is serious conduct. It is of great concern to us," Ms Cass-Gottlieb said on Monday.
"That penalty has to be high enough to be not a cost of doing business for such major companies, to deter them from this conduct in the future and deter all retailers from this manner of conduct."
The prime minister said the allegations being taken to court were serious.
"If this is found to be true, it's completely unacceptable," Anthony Albanese said.
"This is not the Australian spirit.
"Customers don't deserve to be treated as fools by the supermarkets."
Ms Cass-Gottlieb alleged that in many cases the supermarket giants had already planned, before the price spike, to later place the products on special.
She further alleged they implemented the temporary rises for the purpose of establishing a higher "was" price.
"We encourage discounts, genuine discounts matter for consumers, but they need to be genuine," she said.
"(We) allege that in many cases, Woolworths and Coles planned the temporary price spike in order to establish a new higher 'was' price."
The allegations relate to 266 products for Woolworths sold at different times across 20 months and 245 products for Coles sold at different times across 15 months.
The representations were made on pricing tickets displayed to consumers in-store on supermarket shelves and online, usually with a "was" price displayed showing what the price was during the short-term price spike and the date of that price.
Coles said it would fight the court proceedings, blaming price increases on inflationary pressures.
"The allegations relate to a period of significant cost inflation when Coles was receiving a large number of cost price increases from our suppliers and, in addition, Coles' own costs were rising, which led to an increase in the retail price of many products," it said in a statement.
Woolworths acknowledged the legal action and claimed it related to historical pricing schemes.
"Our Prices Dropped program was introduced to provide customers with great everyday value on their favourite products," CEO Amanda Bardwell said in a statement.
"We remain committed to offering many ways for customers to save at the checkout."
The watchdog said it identified the conduct through consumer contacts and social media monitoring, and then conducted an investigation using its compulsory powers.
Woolworths allegedly began the practice in September 2021 and Coles began in February 2022.
The investigation wrapped up in 2023, but Ms Cass-Gottlieb said the practices could still be happening.
It comes as the federal government said it would release a draft of its mandatory code of conduct for supermarkets.
A mandatory code was a recommendation of a recent inquiry into the supermarket sector.
The previous code - which dealt with relations between supermarkets and suppliers - was voluntary.
Laws setting up the code are due to be introduced to parliament this year.
"The legislation that we would introduce would mean that Aldi, Coles and Woolworths and Metcash, would face multimillion-dollar penalties for serious breaches," Mr Albanese said.
Shares in Coles and Woolworths slumped by about three per cent on Monday.
