ACCC Alleges Misleading 'Down Down' Discounts by Coles in Federal Court Case

ACCC Alleges "Illusory" Discounts in Coles' "Down Down" Campaign

The Australian Competition and Consumer Commission (ACCC) has initiated and concluded federal court proceedings against supermarket chain Coles, alleging that its "Down Down" pricing campaign misled consumers with "illusory" discounts. The ACCC contends that Coles temporarily raised prices on numerous products before applying discounts, making the final promotional price appear lower than a recent higher price, but sometimes equal to or above the product's long-term regular price.

Coles denies the allegations, asserting that its discounts were genuine and reflected increased supplier costs and inflationary pressures during the period in question. The outcome of the case, which involved detailed testimony and examination of internal pricing policies, is pending.

ACCC Allegations and Examples

The ACCC alleges that Coles engaged in a "planned" campaign that misled customers between January 2021 and May 2023. The regulator claims Coles temporarily increased prices on at least 245 household products, subsequently reducing them and applying the "Down Down" label, which sometimes resulted in a final price equal to or higher than the previous established price.

While the price tickets were "literally true" in reflecting a discount from the recently increased price, the ACCC argues they were "utterly misleading" due to the product's prior pricing history.

Specific examples cited by the ACCC during the hearing include:

• Nature's Gift Wet Dog Food: Allegedly sold for $4 for approximately 296-300 days, then increased to $6 for seven days, before being reduced to $4.50 and advertised as "Down Down." The $4.50 price was 50 cents higher than the prior $4 price. Coles acknowledged this specific instance as an error and a violation of its internal guidelines.
• Karicare Baby Formula: Reportedly priced at $18 for 794 days, increased to $24 for 23 days, then dropped to $21 and labeled "Down Down."
• Arnott's Shapes Multipack: Had been $5 "Down Down" for over 340 days. Following supplier negotiations, it was sold at $6.50 for one week, discounted by 30 percent, then reverted to $6.50 for two more weeks, before being offered at $5.50 "Down Down." The ACCC noted customers paid 50 cents more than the previous $5 "Down Down" price.
• 2-litre Coca-Cola: Allegedly priced at $2.75 with a "Down Down" advertisement at the start of 2021. After a price increase, it was put on "Special" at $3.50, which then became the new "Down Down" price, 27 percent higher than the initial $2.75.
• Strepsils: Reportedly increased from $5.50 to $7 for 28 days, then discounted to $6 under a "Down Down" promotion, which was 9 percent higher than the original regular price.
• Yoghurt and Deodorant: Showed similar patterns of price increases followed by "Down Down" promotions where the final price was higher than the previous long-term price.

The ACCC legal counsel argued that shoppers, often in a hurry, perceived the red "Down Down" tickets as indicating a genuine price reduction without necessarily knowing the product's price history.

Coles' Defense and Internal Policies

Coles denies the allegations of misleading conduct, arguing that the ACCC's case is "overly complicated" and that the pricing tickets shown to customers were "literally correct." The supermarket maintains that its "Down Down" prices represented genuine discounts from established shelf prices, which were influenced by significant cost increases from suppliers, escalating operational costs, and high inflation experienced in Australia during the period. Coles stated that in 243 out of 255 instances, suppliers requested higher shelf prices or changes to promotional funding.

Coles contended that for most of the 245 items examined, prices were increased for four to six weeks, not just short periods, and significant volumes were sold at these higher prices. The company also argued that the ACCC has not adequately defined what constitutes a "regular price" or its duration.

Coles' legal team suggested that "all prices are temporary" and cited the period as a "time of significant inflation."

Internal "guardrails" or policies at Coles required a minimum duration for a higher price before a "Down Down" promotion could be applied, initially 12 weeks, later reportedly changed to four weeks due to competitive pressures. A former Coles manager admitted to breaching these guidelines for Arnott's Shapes, attributing it to "human error." Evidence suggested that Coles had promotional plans prepared for products even before introducing higher "was" prices, and that the company had modified its minimum window for established prices to four weeks.

Court Proceedings and Testimonies

The Federal Court case, presided over by Justice Michael O'Bryan, involved multiple days of hearings and testimonies from current and former Coles managers.

• Paul Carroll, a former head of Coles' pet food category, testified about negotiations concerning Nature's Gift dog food. He stated he prioritized customer interests and pricing, a claim challenged by ACCC legal counsel Garry Rich, who suggested the primary goal was to increase sales and revenue. Carroll conceded he had planned actions that a Coles pricing executive, Chris Reid, indicated were not in the "spirit" of "Down Down" promotions, although Reid had also stated a lower price without the "Down Down" label would be permissible.
• Rebecca Thompson, a former biscuits and cookies category manager, admitted that Coles breached internal pricing guidelines for Arnott's Shapes promotions, confirming it was an "error."

Justice O'Bryan questioned the ACCC on whether it had adequately pleaded that shoppers believed they were receiving a "genuine discount" or "a good deal," suggesting the case might hinge on the "genuineness" of the discounts, independent of previous regular prices.

Coles requested certain documents and figures remain suppressed due to commercial-in-confidence concerns.

Broader Industry Context and Financial Performance

The ACCC's case against Coles is part of a broader scrutiny of Australia's supermarket sector, which includes similar allegations against Woolworths, with its case scheduled for later in the year. The ACCC has characterized the Australian supermarket sector as "oligopolistic," with Coles and Woolworths collectively controlling approximately two-thirds of the market. Public concerns about "price gouging" and "illusory discounts" have been raised by consumers, with some engaging in protest actions.

The federal government has also introduced a ban on "excessive pricing of groceries" from July 1, potentially leading to further legal action against supermarkets.

• Supermarket sales, excluding tobacco, increased by 3.6%.
• Overall group sales rose 2.5% to $23.6 billion.
• Net profits declined by 11.3% to $511 million, including a $165 million provision for penalties related to an underpayment scandal.
• Excluding the one-off penalty, net profits increased by 12.5% to $676 million.
• Coles announced an interim dividend of 41 cents per share.
• Coles' share price decreased by 7.4% to $20.56, falling below market expectations.
• Liquor sales declined by 3.2%, attributed to reduced discretionary spending.

• Shares rose 13 percent to $35.63, a record single-day performance.
• Net profit decreased 49 percent to $354 million, due to a $485 million charge for staff remediation.
• Excluding this charge, net profit increased 16 percent to $859 million, exceeding analyst expectations.
• Australian Food division sales increased 3.6 percent to $27.6 million.
• Shareholders will receive an interim dividend of 45 cents per share, an increase from the previous year.

The Federal Court will rule on the legality of Coles' pricing and marketing practices, with the outcome expected to influence retail pricing strategies across the industry.