At a time most people are trying to cut their weekly grocery bills, Australia’s supermarket giants have been hit with legal action for allegedly misleading shoppers over the price of hundreds of products.

The Australian Competition and Consumer Commission (ACCC) on Monday announced it was launching separate actions in the Federal Court against the largest and second-largest grocery chains, Woolworths and Coles.

The ACCC alleges the two have systematically misled consumers over price discounts on hundreds of everyday products. The ACCC chair, Gina Cass-Gottlieb, said the alleged wrongdoing involved the sales of “tens of millions” of products, reaping “significant” extra revenue for the businesses.

Woolworths’ list of 266 items included Arnott’s Tim Tams, Dolmio sauces, Doritos salsa, Friskies cat food, Kellogg’s cereal and Stayfree pads, while the 245 products allegedly targeted by Coles included Arnott’s Shapes biscuits, Band-Aids, Bega cheese, Cadbury chocolates and Libra tampons.

These were not one-off pricing errors. The ACCC alleges the misleading conduct took place over 20 months as part of the Woolworths “Prices Dropped” and the Coles “Down, Down” promotional campaigns.

How shoppers were allegedly misled

The ACCC alleges on repeated occasions the supermarkets’ strategy was to temporarily raise the price of goods before applying the so-called discount.

The approach meant that although the boldly placed, coloured discount tickets showed a reduction from the previous “regular” price of the products, the discounted price was still higher than the price before the temporary price rise.

The ACCC gave the example of how consumers were allegedly misled over savings on a 370-gram family pack of Oreo original biscuits.

From at least January 1 2021 until November 27 2022, Woolworths offered the Oreos for sale at a regular price of $3.50 on a pre-existing “Prices Dropped” promotion. Then, on November 28 2022, the price was increased to $5.00 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 $5.00. The “Prices Dropped” price of $4.50 was in fact 29% higher than the product’s previous regular price of $3.50.

What is the legal claim?

The ACCC does not regulate prices. Instead, it acts on breaches of the Competition and Consumer Act 2010, including making false or misleading claims about the prices of goods and services.

While it was true that Woolworths and Coles reduced the shelf price of the products, the ACCC alleges they didn’t reveal that the starting price had recently been increased. It is this conduct of promoting a discount from a recently inflated price that the ACCC says would mislead consumers.

The ACCC’s argument is the “ordinary and reasonable” consumer expects a discount to be genuine, not coming off a recently inflated price. The net effect of that strategy is just an increased price.

Other cases

This is not the first time the ACCC has pursued such a claim. In 2020, the commission successfully went after online retailer Kogan for engaging in a similar strategy.

Kogan ran an online promotion advertising to consumers that they could use the code TAXTIME to reduce prices by 10% at the checkout. The court found the ads conveyed false or misleading representations because Kogan had increased the prices of more than 600 of its products immediately before the promotion by at least 10% per cent.

A similar strategy of offering discounts that were not genuinely delivered has also been raised against insurer IAG. The Australian Securities and Investments Commission (ASIC) alleges IAG did not deliver promised loyalty discounts to customers because their premiums were increased before the discount was applied by more than the amount of the discount.

IAG is now facing action for civil penalties from the regulator (ASIC) and a class action by affected customers.

Potential penalties Woolies and Coles might face

The ACCC is seeking fines (civil penalties) which could be significant. In the Kogan case, the Federal Court awarded penalties of $350,000.

But since November 2022, potential penalties have risen. These increases are designed to ensure companies do not treat the possibility of being penalised as a cost of doing business that is outweighed (and disregarded) by the benefits that might come from contraventions of the law.

These new penalty amounts work on a sliding scale: they start at $50 million but can go up to potentially 30% of a company’s turnover during the period of the contravening conduct.

This amount is per contravention. This means, if the ACCC’s allegations of misleading conduct are established, each time the supermarkets misled consumers, they would technically be liable to pay the full penalty amount.

That said, in such a case, a court would likely take a more holistic approach in setting the penalty, taking several matters into account including: the extent of the conduct, its impact on consumers, the gain to the business and whether the conduct was deliberate.

Fittingly, the ACCC is also asking the supermarkets to make a contribution to charities that provide food to people in need.

Notably, in May Qantas agreed with the ACCC to pay a penalty of $100 million, subject to court approval and in addition to compensating customers, for misleading conduct in selling tickets for flights it had already cancelled.