Australia’s watchdog sues top supermarkets over ‘illusory’ discounts

On September 23, Australia’s consumer watchdog announced legal action against the country’s two largest supermarket chains, Coles and Woolworths. The Australian Competition and Consumer Commission (ACCC) has accused the retailers of misleading consumers by falsely marketing numerous products as discounted.

The lawsuits, which have been filed separately against each supermarket, specifically target their promotional programs: Woolworths’ “Prices Dropped” and Coles’ “Down Down.” The allegations suggest that both companies engaged in a practice of temporarily raising prices on a variety of items, only to then slightly reduce those prices to create the illusion of discounts.

According to the ACCC, many products were sold at inflated prices before being advertised as discounted. In some cases, the products were priced similarly to, or even higher than, their original costs before the purported price hike. The ACCC claims that items had been sold at a standard price for at least 180 days prior to an increase of at least 15% for a short time, after which they were promoted at the reduced rates.

The ACCC’s investigation indicates that Woolworths allegedly utilized this strategy for 266 products from September 2021 to May 2023, while Coles reportedly applied it to 245 products between February 2022 and May 2023. The range of products involved in these practices includes everyday items such as batteries, Coca-Cola, baby formula, pet food, and even toothpaste.

An illustrative example from Woolworths’ lawsuit highlights the case of the Oreo Family Pack. From January 1, 2021, to November 27, 2021, this product was regularly priced at approximately $2.38. However, on November 28, the price surged to $3.39 and remained at that level for 22 days. It was then marked down to $3.06 and promoted as a discounted item, despite being nearly 30% more expensive than the original price.

The ACCC estimates that both supermarkets generated substantial revenue through these alleged deceptive practices, selling tens of millions of products under the false discount scheme. ACCC Chair Gina Cass-Gottlieb stated, “Many consumers rely on discounts to help their grocery budgets stretch further, particularly during this time of cost-of-living pressures. It is critical that Australian consumers are able to rely on the accuracy of pricing and discount claims.” Cass-Gottlieb emphasized that misleading discount claims adversely affected consumers’ abilities to make informed purchasing decisions.

In response to the allegations, Woolworths Group indicated that it would “carefully review the claims made by the ACCC” and would continue to engage with the watchdog regarding the legal proceedings. Amanda Bardwell, the CEO of Woolworths Group, defended the “Prices Dropped” initiative, asserting it was designed to provide customers with “great value on their favorite products.” Bardwell committed to continuing efforts to offer various ways for customers to save at checkout.

Meanwhile, Coles also denied the allegations leveled against it. In a statement, the supermarket contended that the lawsuit pertains to a time when it was experiencing “a large number of cost price increases” from suppliers, coinciding with rising operational costs. Coles asserted that it aimed to strike a balance between managing these cost increases and offering competitive pricing through the revival of promotional activities as quickly as possible after establishing the new non-promotional price.

The ACCC is seeking various legal remedies, including declarations, penalties, and costs, along with community service orders. This would require both Coles and Woolworths to financially support a registered charity dedicated to providing meals to Australians in need.

With roughly 1,140 supermarket locations, Woolworths stands as Australia’s largest supermarket chain, while Coles, which operates over 840 national stores, is the second-largest.