Deceptive discounts: Supermarkets going ‘Down Down’ for misleading customers

After six government inquiries into supermarkets that barely landed a punch, the competition regulator has delivered a telling blow to Coles and Woolworths, alleging the two big boys of the sector engaged in a sustained smoke and mirrors campaign on how they discounted a range of everyday products.

From Tim Tams to Twisties and cat food to Coca-Cola, those lower-for-longer price discounts were psychological bait designed to make us believe we were getting better value, according to the Australian Competition and Consumer Commission (ACCC).

The ACCC alleges that Coles and Woolworths have engaged in a sustained smoke and mirrors campaign on its discounted products. Credit: Louie Douvis

Misleading consumers is illegal under Australian law. And while the notion of feeding customers fake discounts may not rise to the same level as Qantas’ ghost flights or claims of retailers – Harvey Norman and JB Hi-Fi – selling worthless extended warranties, this is a shocking look for the supermarket giants.

Particularly at a time when the cost of living crisis has incentivised politicians, think tanks and regulators to at least look like they are doing something to protect consumers from corporate excess.

The implications of this ACCC action for the supermarket giants cannot be overstated, where the government inquiries have so far smacked of politics, the regulator’s action alleging Woolworths and Coles misled shoppers with the imposition of illusionary discounts on some products is based on extensive research and includes specific examples of the alleged breaches.

The purported breach of customer trust, as outlined by the ACCC, adds fresh fuel to the growing public discontent. With the average grocery bill taking chunks out of the household budget, Woolworths and Coles have been regularly assuring their customers they are helping them fight cost of living pressures.

Good luck convincing them of that now.

The gist of the ACCC’s action is that the supermarkets artificially increased prices on certain products for a relatively short period after which they dropped prices back to a “regular” price, which was then advertised as “Prices Dropped” or “Down Down”. The ACCC’s action against Woolworths spans September 2021 to May 2023 over the pricing of 266 products, while the Coles case covers the period between February 2022 and May 2023 and includes 245 products.

While these allegations have been made in relation to a fraction of the thousands of products sold in a typical supermarket, it won’t do much to placate customers’ perception that they have been duped.

“The ACCC alleges that the supermarkets offered certain products at a regular price for at least 180 days. They then increased the price of the product by at least 15 per cent for a relatively short period of time, and subsequently placed it onto their ‘Prices dropped’ or ‘Down Down’ program.”

The regulator further alleges the display of the “Prices Dropped” and “Down Down” labels was misleading, as the price of the products was, in fact, higher than, or the same as, the regular price at which the supermarket had previously offered them for sale.

For almost a year Labor, the Coalition and the Greens have been belting the two big supermarket chains with claims of price gouging and for the lack of meaningful competition.Credit: James Alcock

For almost a year, Labor, the Coalition and the Greens have been belting the two big supermarket chains with claims of price gouging and for the lack of meaningful competition. It is worth noting that the ACCC is not alleging the two supermarkets engaged in collusion or anticompetitive conduct.

The implications of this ACCC action for the supermarket giants cannot be overstated.

The ACCC’s action doesn’t claim price gouging either, which has been a big feature of the discussion on Australia’s concentrated grocery market but is perfectly legal because retailers are allowed to set prices at whatever level they choose.

Rather, the ACCC is claiming that consumers have been misled with the discounting mechanism, diminishing their ability to make informed choices about their essential purchases.

Coles, which is defending the claim, said the allegations related to a time of significant inflation when it was being hit by cost increases from its suppliers. Meanwhile, Woolworths acknowledged the ACCC’s action and said it would review the claims.

It is almost impossible to gauge the potential financial impact on the supermarkets. Each breach after November 10, 2022, can potentially attract a penalty of $50 million.

But the senior management at both supermarkets have a far bigger problem to contend with than just dollars and cents. The ACCC’s allegations will not only widen the growing distrust between the public and the supermarkets, it will also galvanise the voices baying for decisive regulations to hit Woolworths and Coles where it really hurts.

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