Coles accused of ‘utterly misleading’ discounts as major court case kicks off

Coles has appeared before the Federal Court in Melbourne, as hearings for a high-stakes case^[1] launched against the supermarket by Australia’s consumer watchdog officially begin.

The Australian Competition and Consumer Commission (ACCC) is alleging Coles misled consumers with “illusory^[2]” discounts between February 2022 and May 2023.

The watchdog alleges^[3] that in this period, Coles temporarily increased the prices of “at least 245 different products”, then placed them on “Down Down” promotions which were:

higher than, or the same as, the price at which each product had ordinarily been offered for sale.

In opening arguments on Monday, head counsel for the ACCC, Garry Rich SC, described the supermarket’s conduct as “utterly misleading”.

While Coles’ legal team only addressed the court for a short time on Monday, barrister John Sheahan KC said^[4] Coles customers were aware of price movements before making purchases.

Coles has signalled^[5] it will argue the price increases in question represented a genuine response to surging costs.

So, what exactly is at stake for one of Australia’s largest supermarket giants?

Behind the allegations

The ACCC alleges Coles offered misleading discounts on a wide range^[6] of products over the relevant period – ranging from Colgate toothpaste to Sanitarium Weet-Bix cereal.

In its court filing^[7], the ACCC provides the example of a 16 pack of Strepsils Throat Lozenges Honey & Lemon. According to the ACCC, this product had been for sale on a “Down Down” promotion at a price of A$5.50 for at least 649 days.

The ACCC says on 12 October 2022, Coles increased the price to $7 for 28 days, then reduced it back to $6 on a “Down Down” promotion, 9% higher than the previous price of $5.50.

What does ‘Down Down’ mean?

In making this accusation, the ACCC is emphasising the overall impression created in the mind of the reasonable consumer was that the price drop related to a price set more than a short period before.

It argues consumers should be able to take the “Down Down” campaign at face value, without scrutinising the fine print price change or researching prices over the recent history.

Notably, the ACCC is arguing that the conduct by Coles was “planned^[8]”. In other words, that the allegedly misleading representations were deliberate.

Under Australian Consumer Law^[9], conduct can be misleading without being intentional. However, if the ACCC can show that the conduct was indeed planned then an inference that the conduct was also misleading is easier to establish. Additionally, intentional misleading representations^[10] are likely to attract a larger penalty.

What might Coles argue?

By contrast, Coles’ case is likely to rest on two things. First, its right to raise prices, especially in response to what Coles has said^[11] were “significant cost increases”, including:

a surge in global commodity prices, and in the cost of packaging, freight, utilities and international shipping.

And second, that the “Down Down” price on the ticket was, strictly speaking, accurate – there was a price reduction from the shelf, just not a reduction compared to the historical, pre-increase price.

So it is a legal battle with potentially significant consequences for all parties.

A separate action^[12] by the ACCC against Woolworths, also alleging “illusory” discounts, will be heard later this year.

Clearly the outcome of the case against Woolworths will be influenced by what happens in the Coles litigation.

What’s at stake?

If Coles is found to have made the alleged misleading representations, any penalties will be determined by the court in a separate hearing. However, the amounts are potentially significant.