Coles and Woolworths: How ‘illusory’ discounts put supermarket giants in the crosshairs of ACCC

Coles and Woolworths are accused of running scam discount programs that duped and ripped off customers during a cost-of-living crisis, prompting Prime Minister Anthony Albanese to demand supermarkets stop treating shoppers like “fools”.

In an extraordinary development, the Australian Competition and Consumer Commission has launched legal action against the two supermarket giants for allegedly misleading customers about “illusory” cut-price offers on hundreds of products ranging from Oreo biscuits to tampons, tissues, and dog food.

Mr Albanese said the alleged conduct, if proven, was “completely unacceptable” as he unveiled a draft mandatory food and grocery code that would threaten retailers with multimillion-dollar penalties for breaches.

“This is not the Australian spirit,” Mr Albanese said.

“Customers don’t deserve to be treated as fools by the supermarkets.

“They deserve much, much better than that.”

The allegations centre on Coles’ long-running “Down, Down” campaign and Woolworths’ “Prices Dropped” pitch, which were both promoted as a lifeline to families struggling to make ends meet as inflation pushed up prices on everyday items.

The claims involve 266 products for Woolworths at different times across 20 months, and 245 products for Coles at different times across 15 months, amounting to “tens of millions” in sales from which both chains “derived significant revenue”, the ACCC said.

The watchdog will allege the supermarkets briefly jacked up the price of products at least 15 per cent before slapping on a Prices Dropped and Down Down discount.

That meant the product appeared cheaper when in fact it was more expensive than what it was before the short-term price spike.

“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,” ACCC chair Gina Cass-Gottlieb said.

In one example of how the grocers allegedly mislead shoppers, the consumer watchdog pointed to Oreo biscuits.

It said that from January 1, 2021 to November 27, 2022, Woolworths was selling the Oreo Family Pack Original 370g product for $3.50 on a pre-existing Prices Dropped promotion for at least 696 days.

On November 28, 2022, the price was increased to $5 for 22 days. On December 20, 2022, the product was placed on a Prices Dropped promotion with the tickets showing a Prices Dropped price of $4.50 and a “was” price of $5.

The price of $4.50 was, in fact, 29 per cent higher than the product’s previous regular price of $3.50.

Woolworths said it was “carefully” reviewing the ACCC’s claims.

Chief executive Amanda Bardwell — who only took on the top job three weeks ago — said it was important for customers to “trust the value they see when shopping our stores”.

Coles has vowed to defend the court action, arguing the allegations related “to a period of significant cost inflation” when it was receiving a large number of cost price increases from suppliers and faced its own cost rises “which led to an increase in the retail price of many products”.

The ACCC is seeking a court-imposed fine and declarations from both Coles and Woolworths.

They would also be required to fund a registered charity to deliver meals to Australians in need, above and beyond such charitable programs already in place.

The Prime Minister said the Government took the allegations levelled against Coles and Woolworths “very seriously”.

“Shoppers are on the hunt for discounts when they do their weekly grocery shop because every dollar matters when people get to the checkout, advertised discounts need to be genuine each and every time,” he said.

“Specials need to be real because household budgets are tight.”

The alleged conduct coincided with the skyrocketing inflation that the Reserve Bank used to justify its 13 interest rate hikes since May 2022.

Mr Albanese bought into suggestions the supermarkets’ actions contributed to the bank’s decisions.

“When you’re charging more for products than you should, it of course has an inflationary impact by definition,” he said.

Shadow treasurer Angus Taylor said the practice of misleading discounting was “completely unacceptable”.

“At a time like this, when Australians are facing huge cost-of-living pressures, the homegrown inflation is bearing down on every Australian household, particularly when it comes to groceries,” Mr Taylor said.

“It’s crucial that we have fair and transparent price advertising, and if there’s been misleading discounting, that’s completely unacceptable and appropriate action should be taken, and I understand is being taken.”

Mr Albanese on Monday launched consultation on a draft mandatory food and grocery code to regulate conduct in the sector.

Former Labor minister Craig Emerson’s grocery code review earlier this year recommended shifting from a voluntary to a mandatory regime.

Mr Albanese said under laws to be introduced to Federal Parliament this year, retailers including Aldi, Coles, Woolworths and IGA distributor Metcash would face the threat of multimillion-dollar fines for serious breaches.

The code would also beef up protections for suppliers with tougher dispute resolution arrangements, and new obligations to protect them from retribution.

“We know there’s more to do, but my Government wants to make sure that Australian consumers get a fair go,” Mr Albanese said.

“When families are doing it tough, they need a Government that’s on their side. But they also need a tough consumer cop on the beat.”

The Opposition said the “delayed” release of the draft laws was further proof the Federal Government was “always on the backfoot” when responding to the cost-of-living crisis.