The Australian Competition and Consumer Commission (ACCC) has launched legal action against Woolworths and Coles.

The ACCC alleges the supermarket giants breached consumer law by misleading consumers through discount pricing claims on hundreds of products. 

The ACCC has alleged both companies sold items at regular prices for up to six months, then increased the prices of those items by at least 15 per cent before placing them in the "Prices Dropped" Woolworths promotion or "Down Down" Coles promotion.

The ACCC alleges up to 266 products were involved in pricing claims by Woolworths at different times over an estimated 20 month period and 245 products for Coles over a period of about 15 months. 

Some of the Woolworths products included Tim Tams, Dolmio sauces, Doritos salsa, Energizer batteries, Kellogg’s cereals and hundreds of others. 

Coles products included Arnott’s Shapes biscuits, Band-Aids and Cadbury chocolates amongst others.

“Following many years of marketing campaigns by Woolworths and Coles, Australian consumers have come to understand that the ‘Prices Dropped’ and ‘Down Down’ promotions relate to a sustained reduction in the regular prices of supermarket products,” ACCC chair Gina Cass-Gottlieb said.

“However, in the case of these products we allege the new ‘Prices Dropped’ and ‘Down Down’ promotional prices were actually higher than, or the same as, the previous regular price.”

In a statement, Woolworths Group said it would carefully review the claims and engage with the ACCC on the matter. 

"Cost-of-living pressures remain a key issue for millions of Australians who shop with us every week,” CEO Amanda Bardwell said.

"Our customers are telling us they want us to work even harder to deliver meaningful value to them and it's important they can trust the value they see when shopping our stores.

"Our Prices Dropped program was introduced to provide our customers with great everyday value on their favourite products.

"We remain committed to offering many ways for customers to save at the checkout, including thousands of weekly specials, everyday low prices on household essentials, a great value own brand range and through our Everyday Rewards program."

Coles said it would defend the proceedings brought against it.

In a statement, the company said the allegations related to a period of significant cost inflation when Coles was receiving a large number of cost price increases from suppliers. 

“Coles’ own costs were rising, which led to an increase in the retail price of many products,” it said.

“Coles sought to strike an appropriate balance between managing the impact of cost price increases on retail prices and offering value to customers though the recommencement of promotional activity as soon as possible after the establishment of the new non-promotional prices.”

Last year, Coles announced it would refund thousands of customers after CHOICE complained to the ACCC about the supermarket giant’s pricing.

CHOICE Director of Campaigns Rosie Thomas welcomed the ACCC announcement and called for greater transparency in supermarket pricing data.

"We know … promotional labels at the major supermarkets often confuse shoppers and the frequent changes in prices make it difficult to tell whether there is a genuine discount or not," Ms Thomas said.

"Earlier this year, our nationally representative research revealed that on average one in four people found it difficult to identify if certain supermarket labels represented a true discount or not. 'Down Down' labels at Coles and 'Prices Dropped' labels at Woolworths were among those that caused confusion for consumers."

The ACCC said it identified the conduct through consumer contacts and social media monitoring.

The ACCC estimates the two companies sold tens of millions of products using this method and derived significant revenue from it. 

The watchdog said it would seek community service orders that Coles and Woolworths must each fund a registered charity to deliver meals to Australians in need.

"We're seeking a significant penalty," Ms Cass-Gottlieb said.

"This is serious conduct that is of great concern to us, that affected many consumers with millions of products sold, subject to this practice."

She said the penalty needed to deter the supermarkets and other companies from doing it again. 

Government one step closer to new penalties regime

The maximum penalty for each breach of the Australian Consumer Law increased on November 10, 2022 —  part way through the period of the alleged conduct.

For contraventions from November 10, 2022, the maximum penalty is the greater of:

• $50,000,000
• if the court can determine the value of the "reasonably attributable" benefit obtained, three times that value, or
• if the court cannot determine the value of the "reasonably attributable" benefit, 30 per cent of the corporation's adjusted turnover during the breach turnover period for the contravention.

Any penalty that might apply to this conduct is a matter for the court to determine and would depend on the court's findings. The ACCC would not comment on what penalties the court may impose.

The legal action coincides with the publication of a draft law to impose tougher penalties on large supermarkets who mistreat suppliers.

The penalties will be as high as 10 per cent of a supermarket's annual turnover and will form part of a new mandatory code of conduct, as recommended in a review by former Labor minister Craig Emerson.

The new regime will require a combination of regulation and legislation to enact, something the government hopes will be in train by the end of the year and will take effect next April.

The code will deal with supermarket behaviours such as threatening suppliers or making unreasonable demands, but does not affect the prices customers will be charged.

That question is being considered by a separate inquiry led by the ACCC, with an interim report expected in the coming days.

Other court action by ACCC

The ACCC has previously taken legal action against other companies such as Qantas for breaching consumer law.

In May, Qantas reached an agreement with the ACCC after the watchdog took legal action against the airline for selling seats on flights that had already been cancelled.

As part of the settlement Qantas was forced to remediate affected passengers with payments ranging from $225 for domestic customers to $450 for international customers — totalling about $20 million.

The payments were in addition to any remedies already offered by Qantas, such as alternative flights or refunds.

Qantas was also ordered to pay a $100 million civil penalty to the federal government for breaching the Australian Consumer Law.

At the time, ACCC chair Ms Cass-Gottlieb described the airline's conduct as "egregious and unacceptable".