Australia’s Major Supermarkets Face Legal Action Over Misleading Discounts

Australia‘s consumer watchdog has initiated legal proceedings against the country’s two largest supermarket chains, Woolworths and Coles, accusing them of misleading consumers with deceptive discount practices on a multitude of products. The Australian Competition and Consumer Commission (ACCC) filed lawsuits on Monday, claiming that the two giants raised prices on products and then falsely advertised these increased prices as discounted rates.

This move represents a significant action against the supermarkets, which are already facing scrutiny from lawmakers and regulators over alleged pricing tactics amid a period marked by increased interest rates, housing costs, and energy bills impacting consumers in Australia.

Gina Cass-Gottlieb, chair of the ACCC, indicated that Woolworths and Coles maintained the prices of certain products consistently for as much as two years before escalating them, only to then advertise these prices as being on sale. “The price discounts as promoted were misleading because the discount was illusory,” Cass-Gottlieb stated in a press briefing, explaining that this practice affected millions of product units.

The ACCC is seeking unspecified penalties from the Federal Court, with potential fines including a sum of A$50 million, 30% of the turnover for the offending period, or threefold the financial benefit gained from the misconduct. Cass-Gottlieb emphasized that penalties should be significant enough to deter such conduct and prevent it from becoming an accepted business practice.

Australia’s Prime Minister, Anthony Albanese, addressing the issue, remarked, “Customers don’t deserve to be treated as fools by the supermarkets,” and declared that the supposed conduct, if proven, would be unacceptable. He concurrently announced draft legislation supporting a mandatory code of conduct for the grocery sector, aimed at imposing substantial fines for breaches.

In response to the allegations, Woolworths and Coles have stated their positions. Woolworths mentioned that they will be reviewing the claims brought forth by the ACCC, while Coles asserted their intention to defend against the legal action. The lawsuits have already made a tangible impact on their market performance, with shares in both companies dropping by as much as 4% following the announcement.

The lawsuits cover the period from September 2021 to May 2023, despite the current CEOs of both companies having assumed their roles after this timeframe. At a Senate hearing in April 2024, former Woolworths CEO, Brad Banducci, noted that consumers would likely switch to competitors if confronted with price gouging.

Analysts, such as Michael Simotas from Jefferies, have noted the possible significance of these cases on the supermarkets’ reputation and financial performance, highlighting that this issue might exacerbate existing concerns over consumer perception and sales retention in the face of burgeoning non-traditional sales channels.