Supermarket giant Coles planned to deceive customers with ‘utterly misleading’ discounts, court hears

Regulator claims Down Down promotions created ‘illusory’ discounts

File image (AFP via Getty Images)

Australia’s consumer watchdog has accused supermarket giant Coles of running an “utterly misleading” pricing campaign, as a landmark Federal Court case gets underway in Melbourne.

Coles is accused of creating false discounts under its “Down Down” campaign – between February 2022 and May 2023 – by briefly raising prices on hundreds of staples such as toothpaste, soft drinks, cheese and pet food before reducing them and advertising the new price as a special deal.

The Australian Competition and Consumer Commission (ACCC) argued that this created “illusory” discounts and boosted sales without offering genuine discounts. Around 245 products are said to be involved.

Coles has denied wrongdoing, saying that the products in question were subject to “natural” price fluctuations and that ordinary customers were fully aware of the market forces at play.

According to ACCC head counsel Garry Rich SC, the “Down Down” sale was extremely lucrative for Coles. “Substantially more revenue is generated on promotion than not,” he said. “Material sales revenue are higher when the product is on promotion [and] Coles’s gross profit is projected to improve when the product is sold on the ‘Down Down’ price.”

Mr Rich alleged that Coles had repeatedly deceived their customers and that the pricing was not “fair dinkum”.

“Why on earth are you telling your customers the price is going down? They’re not,” he said.

Justice Michael O’Bryan heard the ACCC’s opening remarks on Monday on the first of a 10-day Federal Court hearing in Melbourne.

Mr Rich presented examples to the court that included Coles’ pricing of 1.2kg cans of Nature’s Gift Wet Dog food. Mr Rich told the court that for almost 300 days between April 2022 and February 2023, Coles sold a 1.2kg can of Nature’s Gift Wet Dog food for A$4.

The price then increased by 50 per cent to A$6 for seven days.

On the eighth day, it was reduced to A$4.50 – still 13 per cent higher than what customers had paid for all but seven of the previous 303 days – and was promoted by Coles under its “Down, Down” campaign.

Mr Rich said that while that statement was “literally true” it was also “utterly misleading”.

“It did not disclose that a reasonable consumer would not have understood that Coles had increased the price to $6 for just 7 days, immediately before the promotion, and that for 296 days before that, the price was $4,” he said.

“By making the statement it did, without disclosing those crucial qualifying facts, Coles led reasonable consumers into error.

“It caused them to assume that the ‘Down, Down’ price of $4.50 was a genuine reduction to, or discount from, the previous regular price of the product. That assumption was wrong.

“A reasonable consumer who knew the real facts would not think the price of the dog food has gone down, nor would they think that a price of $4.50 would be a genuine reduction or discount.”

John Sheahan KC, representing Coles, rejected the ACCC’s allegations that Coles ran a planned campaign to mislead consumers. “Grocery shoppers at Coles are much more attuned to these things than anyone around these tables are likely to be,” Mr Sheahan said.

He said the court should take into account that “ordinary, reasonable consumers know they’re in an inflationary environment”.

“They know that that means the price of things is changing in an upward direction,” he said.

“So when our learned friends says … Coles said prices were going down, in fact they were going up – it completely distorts the perspective with respect of an ordinary, reasonable consumer.

“In that context, what Coles is doing is perfectly natural.”

Consumer rights groups in Australia have welcomed the Federal Court action. “During a cost-of-living crisis, retailers should be doing all they can to ensure clear, transparent pricing – not obscuring rising prices with confusing promotions,” director of campaigns and communications at consumer group Choice, Andy Kelly, told the Australian Broadcasting Corporation.

“This court case is not only a wake up call for Coles, but for other retailers who may be engaging in similar practices.”