Key Takeaways
- The ACCC alleged that Coles inflated product prices before labeling them as discounts in its “Down Down” program, misleading consumers.
- The case covered more than 245 products sold between February 2022 and March 2023.
- Coles defended the price increases as genuine commercial decisions driven by supplier cost rises, a argument the judge initially accepted.
- Justice O’Bryan found Coles’ internal rule requiring a product to be held at the higher price for at least 12 weeks was not satisfied, rendering the “was” prices artificial.
- The ruling could expose Coles to fines of up to $50 million per breach (likely lower in practice) and may set a precedent for the similar case against Woolworths.
Background and ACCC Allegations
The Australian Competition & Consumer Commission (ACCC) has taken both Coles and Woolworths to court over claims that the supermarket giants used fake discounts to lure shoppers. According to the regulator, the retailers raised the prices of various items and then promptly reduced them, advertising the lower price as a special offer. This practice, the ACCC argues, creates a false impression of savings and breaches Australian consumer law by misleading customers about the true value of promotions. The regulator’s action highlights growing scrutiny of pricing tactics in the highly competitive grocery sector, where promotional strategies are a key battleground for market share.
Scope of the Coles Case
In the Coles proceeding, the ACCC focused on more than 245 distinct products that were allegedly subjected to misleading discount practices between February 2022 and March 2023. The regulator presented a detailed list of items ranging from pantry staples to pet food, demonstrating that the pattern was not isolated but widespread across the chain’s inventory. By aggregating numerous examples, the ACCC sought to show that Coles’ “Down Down” promotional scheme systematically relied on inflated reference prices to make discounts appear larger than they actually were. This breadth of evidence was intended to underscore the scale of potential consumer harm and the financial benefit Coles derived from the tactic.
ACCC’s Argument and Evidence
Leading the ACCC’s case, senior counsel Garry Rich SC described the alleged conduct as “utterly misleading” and emphasized its profitability. He pointed out that “substantially more revenue is generated on promotion than not,” suggesting that the discounted pricing strategy was a deliberate driver of sales rather than a genuine response to market conditions. Rich highlighted internal documents and pricing data that, in his view, demonstrated a pattern of artificially inflating the “was” price before applying a discount label. His argument framed the practice as a calculated effort to enhance perceived value and boost turnover, directly contravening the requirement that discount claims be based on legitimate, pre‑existing prices.
Coles’ Defence and Justice O’Bryan’s Reasoning
Coles countered that the price increases were not contrived but reflected genuine commercial decisions necessitated by rising costs from suppliers. The supermarket argued that, in order to maintain profitability amid inflationary pressures, it had to raise baseline prices before offering them as discounted promotions. Justice O’Bryan initially accepted this explanation, acknowledging that businesses routinely adjust prices in response to supplier cost fluctuations. He noted that a legitimate commercial rationale for price increases could, in principle, coexist with promotional activity, and he did not outright dismiss Coles’ claim that the higher prices were a sincere response to market conditions.
Assessment of Genuine Pricing
To determine whether the inflated “was” prices were authentic, Justice O’Bryan examined a range of factors, chief among them the duration for which the higher price was maintained. He referenced Coles’ own internal “Down Down” policy, which stipulated that a product must be sold at the elevated price for at least 12 weeks before it could be advertised as discounted from that price. The judge found that, in many instances, the period at the higher price fell short of this threshold, undermining the claim that the reference price was genuine. Consequently, the subsequent discounted price could not be considered a true reduction from a legitimate baseline, rendering the promotion misleading under consumer law.
Illustrative Example: Nature’s Gift Wet Dog Food
The ACCC cited Nature’s Gift Wet Dog Food as a representative case study. According to the evidence, the product sold for $4 for nearly 300 days, then spiked to $6 for a single week before dropping to $4.50, with Coles labeling the latter as a discount from the $6 price. Justice O’Bryan concluded that a one‑week elevation was insufficient to establish the $6 price as a bona fide market rate, especially given the prolonged period at the lower $4 price beforehand. This example illustrated how short‑term price hikes could be used to manufacture the appearance of savings, reinforcing the court’s view that the “was” price lacked the durability required to be considered genuine.
Judgment and Potential Penalties
While Justice O’Bryan accepted that Coles’ price increases were motivated by genuine cost pressures, he ultimately ruled that the promotional practice breached consumer law because the higher prices were not maintained long enough to be authentic. The court held that Coles could face fines of up to $50 million for each proven breach, though the final penalty is expected to be considerably lower after mitigating factors are considered. Coles has indicated it will issue a formal statement responding to the ruling shortly, outlining any steps it will take to comply with the decision and adjust its promotional policies.
Implications for Woolworths and Broader Impact
The decision carries significant weight for the parallel case against Woolworths, which is expected to be resolved in the coming months. Because the allegations against Woolworths mirror those leveled at Coles—namely, the use of temporary price inflations to fabricate discounts—the judgment may serve as a persuasive precedent, influencing how the court evaluates similar internal policies and pricing durations. More broadly, the ruling signals to retailers that promotional claims must be backed by reference prices sustained over a meaningful period, encouraging greater transparency and potentially reshaping how discount strategies are devised and communicated in the Australian grocery market.