Two of Australia’s biggest advertisers, Coles and Woolworths, face further regulation after being taken to court for allegedly misleading their customers with false claims in their commercials.
The advertising of deals, which allegedly really weren’t discounts, has the supermarkets taken to the Federal Court by competition watchdog the ACCC relating to marketing campaigns Prices Dropped and Down Down.
Coles said it would defend the action and Woolworths was reviewing the claims.
Market analysts, who track discounting to judge the health of supermarket companies, see an old style supermarket price war gone bad.
And the case cascades out of the legal and finance arena into politics and goes to the very public conversation about Australian families' financial struggles buying basic groceries and the root causes of inflation in the economy.
“This is not the Australian spirit. Australian customers don't deserve to be treated as fools by supermarkets," said prime minister Anthony Albanese, foreshadowing structure regulations.
Woolworths is the second largest for advertising spend in Australia, after Harvey Norman, outlaying about $118 million a year. Coles is ninth.
"The ACCC has uncovered evidence suggesting that these supermarkets may have been inflating prices while creating the illusion of discounts,” said Meg Elkins, senior lecturer in economics at RMIT.
“This revelation underscores the critical need for greater transparency in grocery pricing for consumers.
"In light of these findings, the new mandatory rules for the Food and Grocery Code of Conduct, recommended in the recent Supermarket Inquiry, must be implemented urgently.
“These measures are essential to restoring consumer trust and ensuring fair pricing practices in the grocery sector.
"Trust is fundamental in the relationship between consumers and retailers. The ACCC's case could confirm what many consumers have long suspected about deceptive discount pricing.
“It's crucial that we take immediate action to protect Australian families and ensure they can access affordable groceries without fear of being misled.
"There is evidence that supermarkets may have artificially inflated prices while creating an illusion of discounts. The impact of these practices extends beyond individual households.
“There are worries that such pricing strategies may have contributed to overall inflation, as consumers unknowingly paid higher prices for goods they believed were discounted."
On the financial markets, news of the charge by the ACCC hit the share prices of both Woolworths and Coles.
However, analysts point out that the 250 items alleged by the ACCC relating to false or misleading representations compare to the stock 20,000 stocked by each supermarket.
In any week, items sold on promotion account for more than 30% of typical supermarkets sales.
Investment advisors Evans and Partners, in a note to clients, said the supermarkets in 2022 and 2023 faced a material step-up in the number of supplier price requests.
Woolworths and Coles commented at that time that the number of price requests from suppliers was four times or more than the typical run-rate.
The two examples provided by the ACCC both involved a situation where the suppliers requested a price increase.
Subsequent to this request, the retail shelf price was raised, and then shortly after the supermarkets put the specific product onto a ‘’prices dropped’ / “down down” promotion where they referenced the discount to the new price (which may have only been on shelf for a short term of time).
“It is common to see increase promotional activity on a product immediately after a price rise given price elasticity (ie. higher price results in lower volume),” the analysts said.
“This is often effectively funded by the supplier to ensure an acceptable level of volumes is maintained post a price rise (ie. given manufacturing efficiencies back up the supply chain).
“The case will no doubt explore the appropriate length of time between a price rise (on shelf) and the retailer being able to refer to this as the 'new' price.
“It will also explore whether the supplier price rise request had actually been passed through to the supplier.
“The inherent risk is that with so many price rises and products on promotion at a major supermarket chain – there is always the potential that an issue could have occurred that is deemed to be ‘false and misleading’.”
The case could set a legal precedent.
"The ACCC's move highlights the need for transparency and honesty in marketing strategies, especially in the retail sector where consumers rely heavily on advertised discounts,” said My Nguyen, senior lecturer in finance at RMIT.
"This case could set a legal precedent for how promotional pricing is regulated in Australia. If the ACCC's claims are upheld, it might lead to more rigorous enforcement of consumer protection laws in the future.
"Coles and Woolworths often engage in price wars, trying to undercut each other to gain market share. This competitive pressure can sometimes lead to aggressive pricing strategies that may push the boundaries of consumer laws.
"Competitors might use this opportunity to highlight their own pricing transparency, potentially gaining market share from consumers who are disillusioned with Woolworths and Coles.
“In the long run, ensuring fair pricing practices can contribute to a healthier economy by fostering trust between consumers and businesses, which is essential for sustainable economic growth."
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