Woolworths and Coles taken to court over controversial pricing strategy: 'Misleading'

The consumer watchdog has launched fresh court action against Woolworths and Coles over their separate pricing labels. Shoppers will be familiar with the 'Prices Dropped' and 'Down Down' labels when they peruse the aisles.

But the supermarkets have been accused of misleading Aussies about whether they're actually saving anything. The Australian Competition and Consumer Commission (ACCC) launched separate proceedings against Woolworths and Coles on Monday and alleged they have breached Australian consumer law.

In its allegations, the ACCC claimed the supermarkets inflated the prices of some products by at least 15 per cent while the purchase prices remained steady for at least six months, and in some cases a year.

They were then allegedly shifted to the supermarkets' ongoing discount promotions - "Prices Dropped" for Woolworths and "Down Down" for Coles.

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“Following many years of marketing campaigns by Woolworths and Coles, Australian consumers have come to understand that the ‘Prices Dropped’ and ‘Down Down’ promotions relate to a sustained reduction in the regular prices of supermarket products," ACCC Chair Gina Cass-Gottlieb said.

"However, in the case of these products, we allege the new ‘Prices Dropped’ and ‘Down Down’ promotional prices were actually higher than, or the same as, the previous regular price.

“We allege that each of Woolworths and Coles breached the Australian Consumer Law by making misleading claims about discounts, when the discounts were, in fact, illusory.

“We also allege that in many cases both Woolworths and Coles had already planned to later place the products on a ‘Prices Dropped’ or ‘Down Down’ promotion before the price spike, and implemented the temporary price spike for the purpose of establishing a higher ‘was’ price."

The ACCC claims Woolworths 'misled' customers about the price of 266 products at different times over 20 months, while at Coles it was 245 products over 15 months.

The watchdog estimates the supermarkets sold "tens of millions of the affected products" and gained "significant revenue" from those sales.

What could happen to the supermarkets?

The supermarkets will have to face federal court to answer the allegations outlined by the ACCC.

The maximum penalty for each breach of the Australian Consumer Law since November 2022 can be one of three things and is whatever is greatest out of:

• $50 million

• Three times the value of the "reasonably attributable benefit obtained" during the alleged breach

• If the court can't determine that value then it's 30 per cent of the corporation's adjusted turnover during the breach turnover period

Supermarkets could have affected inflation: Albanese

Prime Minister Anthony Albanese said these alleged actions from the supermarkets could have affected the country's inflation rate.

"When you're charging more for products than you should, it, of course, has an inflationary impact by definition," he explained in a press conference.

"And we know that inflation is what the Reserve Bank is concentrating on in terms of monetary policy, as they should, to try to get it down to the band of 2 per cent to 3 per cent.

"We want to make sure that we continue to put that downward pressure on inflation whilst dealing with cost of living pressures."

He said it's "completely unacceptable" if the two supermarkets are found to have conned shoppers with dodgy strategies.

"This is not the Australian spirit. Customers don't deserve to be treated as fools by the supermarkets," he said. "They deserve much, much better than that. My government takes today's announcement by the ACCC very seriously."

New code of conduct for food and grocery industry

On the same day the ACCC announced court proceedings against Coles and Woolies, the government unveiled a draft for a new code of conduct for the food and grocery industry.

The code was the lead recommendation of a review that was conducted by former Labor minister Craig Emerson. The current code is voluntary and doesn't have any penalties for breaches and no disputes have been raised since 2021, according to Emerson.

The new code, which will be mandatory for companies with annual revenue of $5 billion or more, is designed to regulate the grocery supply chain and ensure there are clear standards of what is acceptable.

"What it really means is that the supermarkets will need to treat their suppliers respectfully, and not use that bargaining power, their superior bargaining power, the muscle that they have, particularly over smaller suppliers," Emerson said earlier this year.

Coles, Woolworths, Aldi will soon face fines of up to $10 million or three times the financial benefit of the breach once the code is finalised.

Whistleblowers will also benefit from expanded protections to ensure they can speak out about dodgy company practices.

"We know there's more to do and my government wants to ensure that Australian consumers get a fair go," Albanese said on Monday.

"When families are doing it tough, they need a government that's on their side."

Woolworths, Coles respond to ACCC allegations

Woolworths said it will "carefully review" the claims made by the ACCC over its Prices Dropped program that went from 2021 to 2023.

The supermarket's new CEO, Amanda Bardwell, said the program was introduced to provide customers with "great everyday value on their favourite products".

“Cost-of-living pressures remain a key issue for millions of Australians who shop with us every week," she added.

“Our customers are telling us they want us to work even harder to deliver meaningful value to them and it’s important they can trust the value they see when shopping our stores."

Coles said it intends to "defend the proceedings" and that it takes compliance with Australian consumer law "very seriously".

"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," the supermarket said in a statement.

"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."

Shoppers are confused by savings labels: CHOICE

Consumer group CHOICE conducted a survey of Aussie shoppers to see if they understood what savings labels meant at the likes of Coles and Woolworths.

Only half of the respondents could "quickly and easily" tell if a product was discounted or not if it had a Prices Dropped tag attached to it at Woolies.

As part of CHOICE's investigation, it found H20 Coconut water was reduced from $6 to $4 in 2019, but still had a red 'prices dropped' label in store.

"We have doubts about whether a product that has been the same price for almost 5 years should be promoted as having a ‘dropped’ price. It’s no wonder consumers were confused as to whether it’s actually discounted or not,” Rosie Thomas, CHOICE director of campaigns, said.

'While stocks last' was the label that confused the most Coles customers, with 33 per cent saying they weren't sure if it was a discount or not.

Shoppers were also confused about the 'Down Down' label.

"We take clear and accurate pricing information very seriously and always aim to ensure that our specials represent value for our customers," a Coles spokesperson said in response to the survey findings.

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