On 23 September 2023, the Australian Competition and Consumer Commission (ACCC) brought separate actions against major supermarket retailers, Coles and Woolworths for breaching the Australian Consumer Law within the Competition and Consumer Act 2010 (Cth) (ACL) by making false and misleading representations in their pricing strategies and promotions.

What happened

The ACCC alleges that Coles and Woolworths each engaged in misleading and deceptive practices between September 2021 and May 2023. The ACCC has identified that Coles and Woolworths increased the price of different household products for a very short time frame before setting a new price for each product that was higher than the original price. The ACCC alleges the conduct involved 266 products for Woolworths across 20 months, and 245 products for Coles across 15 months.

The ACCC alleges that the supermarkets breached the ACL by making misleading claims about discounts, when the discounts were illusory. The ACCC sighted examples such as Strepsils cough lozenges, which were sold at Coles for $5.50 for more than 600 days. The price was raised to $7 and one month later, Coles included the Strepsils in the ‘Down Down’ campaign, advertising a price drop from $7 to $6. Under the ‘Prices Dropped’ Woolworths promotion, the ACCC alleges that Oreos were sold at $3.50 for 696 days, then $5.00 for 22 days, before being reduced to $4.50 with a $0.50 saving for the consumer.

The supermarkets promoted the products under well-established programs that consumers would recognise for helping understand where they could save money by buying the products while on the promotion, to get more value for money on their grocery shops.

Who could have been impacted?

The ACCC alleges that harm was caused to consumers both shopping online or instore, as consumers may have made purchasing decisions informed by false and misleading representations about price. The ACCC highlights the period the conduct took place, citing cost of living pressures and that the representations were made in the context of programs that were promoted as being designed to assist consumers make long-term savings on the cost of their groceries.

The Commissioner of the ACCC, Gina Cass-Gottlieb reflected on the impact of the need for transparent, reliable supermarkets in a media release about the proceedings:

“Many consumers rely on discounts to help their grocery budgets stretch further, particularly during this time of cost-of-living pressures. It is critical that Australian consumers are able to rely on the accuracy of pricing and discount claim.”

Coles has stated that it would defend the proceedings while Woolworths said it would review the claims and engage with the ACCC on the matter.

How large is the alleged breach?

The ACCC alleges that there was a separate breach of section 18 and/or section 29(1)(i) of the ACL each time that Coles and Woolworths made a representation to a consumer about one of the relevant products during September 2021 and May 2023. The ACCC appreciated that this is quite broad and cannot be precisely calculated, and instead inferred that the number is at least equal to the total number of consumers who purchased one of the relevant products while it was being featured as a part of the ‘Prices Dropped’ or ‘Down Down’ promotions.

Potential penalties

The ACCC has not commented on what penalties the Court could impose. However, the penalty for this type of breach increased during the period of the alleged conduct, resulting from the Treasury Law Amendment (More Competition, Better Prices) Act 2022 (Cth). For a breach occurring after 10 November 2022, there is a maximum penalty of:

  • $50,000,000;
  • three times the value of the benefit obtained; or
  • if the Court cannot determine the value of the benefit, 30 percent a company’s adjusted turnover during the period of the breach.

With the amount penalised being per breach, the supermarkets could be looking at a significant civil penalty. However, in cases where there are multiple breaches, we anticipate that the Court will consider multiple factors including, the extent of the conduct, its impact on consumers, the gain made by the business, and whether it was intentional or deliberate (however, this is not necessary to finding a breach).

The government’s ongoing focus on retail sector compliance

The cost-of-living crisis has brought the supermarket sector under increased scrutiny. In late January 2024, the government directed the ACCC to conduct a year long inquiry into Australia’s supermarket sector, including pricing practices and the relationship between wholesale and retail prices.’

Along with the action brought by the ACCC, the government released its draft Food and Grocery Code of Conduct for discussion, which will soon be mandatory and impose new obligations on supermarket chains to improve commercial relations between supermarkets, wholesalers and suppliers.

Consumer group, CHOICE, has also recently released its second report and continues to release its quarterly, government funded report on supermarket prices across Australia. The quarterly report aims to keep supermarkets competitive to provide the best price possible and inform consumers with reliable and transparent information about supermarket prices.

Key takeaways

By initiating the proceedings, the ACCC demonstrates that it continues to emphasise the importance of complying with Australian Consumer Law and will hold dominant organisations accountable.

Some of the key takeaways for businesses include:

  • consumers rely heavily on promotions, particularly, during a cost-of-living crisis, this makes it critical that any advertisements and marketing align with the ACL and are transparent;
  • maintaining a trustworthy brand is valuable to ongoing consumer relationships and this trust can be eroded with deceptive marketing practices; and
  • stakeholders may also be concerned with any reputational damage that comes from proceedings, particularly if your business deals directly with consumers, this could lead stronger monitoring and compliance with consumer protections.

We will be watching out for the responses of Coles and Woolworths closely in response to the ACCC’s claim. In the meantime, we anticipate the release of the ACCC’s interim report into the supermarket sector will also provide insights into the supermarket sector more broadly, and into pricing strategies, marketing practices, supply chain issues, and consumer behaviour.

What does this mean for your business

McCullough Robertson regularly advises clients on consumer, competition and regulatory issues, particularly under the Australian Consumer Law. If you would like to understand more about consumer law or this article has raised any concerns for your business, please reach out to one of our Digital & IP partners below.