(Bloomberg) -- Coles Group Ltd. and Woolworths Group Ltd., Australia’s two biggest supermarket chains, have been sued by the country’s competition regulator over claims they misled shoppers over discounting claims on hundreds of common products.
The Australian Competition & Consumer Commission claims the companies briefly inflated prices on popular goods such as Coca-Cola, Tim Tams biscuits and Colgate toothpaste before reducing them to the same or slightly higher than the original price.
“The discounts were, in fact, illusory,” ACCC Chair Gina Cass-Gottlieb said in a statement Monday. “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 claims,” she said.
Australia has one of the world’s most concentrated supermarket sectors, with Woolworths and Coles controlling just over half of the market, according to Bloomberg Intelligence. Both chains have come under political fire during cost-of-living pressures sparked by stubbornly high inflation, with the government in June introducing larger fines for anti-competitive behavior.
The latest inflation data for the June quarter showed the most significant contributors to prices were housing and food, including non-alcoholic beverages. The rise in food and non-alcoholic beverage prices was driven by fruit and vegetables, meals out and take away food, and meat and seafood, data from the Australia Bureau of Statistics showed.
Australian Grocery Sales Market Share
Woolworths, whose Australian food sales rose 5.6% to A$50.7 billion ($34.5 billion) last fiscal year, said in a statement Monday that it will “carefully” review the ACCC’s claims. Coles, whose supermarket sales gained 6.2% to A$39 billion, said it intends to defend the proceedings.
Shares of both retailers fell at least 3.8% in early Sydney trading.
While the outcome of the proceedings is difficult to predict, “penalties have the potential to be significant,” Jefferies analysts including Michael Simotas write in a note. “In addition, no matter what the outcome of litigation, we expect this matter to add to the pressure on major supermarkets’ consumer perception.”
The ACCC has been taking a tougher stance on protecting Australian consumers, who must contend with duopolies or oligopolies in many industries, including air travel, banking and telecommunications. Earlier this year it won a A$100 million penalty from Qantas Airways Ltd. for selling tickets on thousands of flights it had already decided to cancel.
Oreo Cookies
The competition regulator alleges Woolworths made false or misleading representations about the prices of 266 products between September 2021 and May 2023, while Coles made false or misleading representations about the prices of 245 goods during February 2022 and May 2023.
Cass-Gottlieb said the allegations were “very serious” at a time when consumers are trying to make their grocery budgets go further during a cost-of-living crisis, and that the ACCC is worried both about the harm to consumers and the harm to competition by fake discounts.
The allegations come as the ACCC undertakes a broader analysis of the supermarket sector. Cass-Gottlieb added that the commission is looking in depth at competition, cost, pricing and margins.
“We encourage genuine discounts — they matter to consumers,” she told reporters on Monday. “But they need to be genuine.”
In one example cited, from at least Jan. 1, 2021 until Nov. 27, 2022, Woolworths offered Oreo Family Pack Original cookies for for a regular price of A$3.50 for at least 696 days.
On Nov. 28, 2022, the price was increased to A$5.00 for 22 days. On Dec. 20, 2022, the cookies were placed on a ‘Prices Dropped’ promotion at a new price of A$4.50 and a ‘was’ price of A$5.00.
The ‘Prices Dropped’ price of A$4.50 was in fact 29% higher than the previous regular price, the regulator said.
The regulator also alleged that in many cases both companies “had already planned to later place the products on a ‘Prices Dropped’ or ‘Down Down’ promotion before the price spike, and implemented the temporary price spike for the purpose of establishing a higher ‘was’ price,” Cass-Gottlieb said.
--With assistance from Swati Pandey, Georgina McKay and Angus Whitley.
(Adds company responses from sixth paragraph, share price in seventh.)
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