The competition watchdog’s lawsuits against Coles and Woolworths over allegedly misleading discounts should serve as a “wake up call” for other retailers, experts say, especially as consumers face heightened cost-of-living pressures.
The Australian Competition and Consumer Commission (ACCC) is pursuing separate legal actions against supermarket giants Coles and Woolworths, alleging they conducted ‘illusory’ sales in violation of Australian Consumer Law.
The ACCC alleges the supermarkets held prices on certain items steady for a long period, before temporarily raising prices for a matter of days or weeks.
The supermarkets then allegedly reduced prices on those items in ‘Down Down’ and ‘Prices Dropped’ promotions, to levels lower than the temporary prices but higher than the long-lasting original prices.
The ACCC contends the display of those ‘Down Down’ and ‘Prices Dropped’ promotions across hundreds of products was “misleading, as the price of the products was in fact higher than or the same as the regular price at which the supermarket had previously offered the products for sale”.
Coles intends to defend the proceedings, stating its ‘Down Down’ promotions intended to find a balance between cost pressures faced by the supermarket and the need to provide value to customers.
Woolworths said it is carefully reviewing the claims.
The civil proceedings emerge at a critical time for the nation’s two biggest supermarket chains, which are facing significant regulatory, political, and community scrutiny over their pricing practices.
Other retailers should pay close attention to the allegations and the outcome of those court cases, say Holding Redlich partner Joanne Jary and senior associate Caitlin Waldron.
“High-profile proceedings such as the legal action brought against Coles and Woolworths are likely to put other retailers on notice and send a strong message to the entire retail sector,” they told SmartCompany.
“This is also a wake-up call for other retailers to tighten their practices and ensure full compliance with consumer protection laws to avoid becoming the subject of similar regulatory action,” they added.
The ACCC is no stranger to pursuing legal action over misleading promotions: it recently launched proceedings against white goods retailer The Good Guys, alleging false or misleading representations about store credit.
And in 2020, the Federal Court ruled in favour of the ACCC against online electronics megastore Kogan, finding its 2018 EOFY sales artificially jacked up the price of certain items ahead of tax-time discount promotion.
In that case, Kogan was ordered to pay a penalty of $350,000.
“The Kogan case serves as a valuable precedent in understanding how the Courts and the ACCC approach such matters and what retailers should be aware of,” Jary and Waldron said.
But the pair say retailers should pay especially close attention to the Coles and Woolworths cases as the stakes are now higher.
In November 2022, the maximum penalties for breaches of Australian Consumer Law have drastically increased.
“Under the new changes, companies could face a penalty of the greater of $50 million or three times the value derived from the relevant breach, or, if the value derived from the breach cannot be determined, 30% of the company’s turnover during the period it engaged in the conduct,” they said.
“Given that some of the alleged conduct for Coles and Woolworths occurred after November 2022, this could lead to very significant financial penalties for the two supermarkets if the ACCC is successful in these proceedings.”
Dr Tamara Wilkinson, a lecturer in the law faculty at Monash University, agreed the scale of potential penalties differentiates the new lawsuits from prior proceedings.
The ACCC wants to show engaging in the alleged behaviour “can’t be seen as just a normal cost of doing business,” she told SmartCompany.
If Coles and Woolworths are found to have engaged in pricing misconduct, the ACCC wants the fine “to be significant enough to actually deter them”, Dr Wilkinson said.
Notably for retailers, the ACCC is also seeking community service orders that would force the supermarkets to deliver meals to under-privileged Australians, on top of their existing charitable operations.
The ACCC doesn’t want to seem like the “bad guys” in terms of what they’re asking for, Dr Wilkinson said; beyond prospective penalties, they also want the supermarkets to “contribute to society” for their alleged misconduct.
Notably, social media posts about supermarket pricing practices from everyday consumers formulated part of the ACCC’s information-gathering process, suggesting other retailers may find themselves in strife if customers expose misconduct online.
“Consumers are quick to share experiences about perceived unfair practices on social media,” Jary and Waldron continued.
“Allegations of misleading discounts can quickly gain traction and reach a wide audience.
“Social media posts can provide an indication of consumer dissatisfaction and the ACCC may, as they did in this case, form part of the material that triggered the more in-depth investigation using its compulsory powers.”
Dr Wilkinson said it was too early to tell if the ongoing legal actions against Coles and Woolworths will have any immediate ramifications for smaller retailers, given the ACCC’s focus on broad issues of market misconduct.
However, she agreed the ACCC’s consideration of social media posts was significant, as any business could find itself on the regulator’s radar if social media complaints reach a certain threshold.
“I think the posts people make on social media, if they’re able to get enough traction — which usually will happen if they speak to a broad societal concern, like cost of living — I think that we will see the regulators taking account of that,” she said.
To ensure customers are getting a fair deal, and that the regulator doesn’t come knocking, Jary and Waldron said retailers considering their own sales should offer genuine reductions or discounts to a product’s previous price.
That means not increasing the product’s regular price for a short period for the promotion takes place.
Retailers should clearly communicate their pricing practices to consumers, and conduct regular audits of pricing practices to ensure discounts are legitimate.
Businesses should also “be mindful of the impact that deceptive promotions can have on consumer trust and long-term business relationships,” Jary and Waldron continued.
“Beyond legal penalties, misleading pricing can cause significant reputational harm.”
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Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
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