Updated ,first published
Coles will face fines and compensation claims that could reach hundreds of millions of dollars for spraying false discounts on more than 10 million shoppers, after the Federal Court ruled the supermarket giant misled Australians for years through its “Down Down” scheme.
Judge Michael O’Bryan upheld claims from the Australian Competition and Consumer Commission (ACCC) that Coles’ so-called discounts were based on price increases that had been in place for less than a month, making them fraudulent.
Commission chairwoman Gina Cass-Gottlieb announced the regulator would pursue penalties against Coles, which made $1.1 billion in profits last financial year, big enough that the chain would not see it as just a “cost of doing business” with the class action company reporting it had 10 million victims to compensate.
The decision, which shocked many in the industry, may be major impact on Woolworths, also, because the chain is also facing allegations that it misled customers using the same tactics as Coles in a case heard by the same judge.
But O’Bryan presented a major financial row for Coles, laying bare the rules on discounting in the supermarket sector and questioning whether customers were harmed by the chain’s practices.
“Had Coles offered the products for sale at the ‘Was’ price for twelve weeks, the Down Down tickets would not have been misleading,” O’Bryan wrote in his ruling. “The investigation raises the question of whether consumers were harmed by the behavior.”
However, shoppers at Coles on Thursday said findings that Coles had misled customers confirmed their suspicions. “They seem to have given up on ripping people off,” said Deb Barnes, who was shopping at Coles in Melbourne’s Yarraville with her son Charlie on Thursday afternoon.
Others resigned behavior of the supermarket industry. “If you’re going to get ripped off here, you’re going to get ripped off everywhere you go,” Sally Walker said outside the same Yarraville area.
At Coles in Sydney’s North, grocer Guy Hannan said supermarkets needed to be regulated, adding, “They need to be regulated more. They have a lot of power.”
Yve Stewart, another Coles shopper, said the Coles case had shaken her confidence in the supermarket giant and rival Woolworths. “They lie, it’s simple. We all know it,” Stewart said.
Four-week prices were not ‘real’
The ACCC had it he said that Coles stole the price on hundreds of products in a short period of time so that it could claim that the new prices were a discount on its previous ones, when the “Down Down” price was higher than just a few weeks ago.
Coles defended the claims, saying its discounts were special to help customers and sales after prices rose due to inflation.
O’Bryan found that Coles increased prices because suppliers wanted it to be done “in a commercially acceptable way”.
But he said that the products need to be sold for 12 weeks at a higher price before customers consider the discount to be real. Many Coles products were on top prices for just four weeks. As a result, O’Bryan found Coles had misled customers.
“The products in question were not sold at the price ‘stated’ on the ticket for a reasonable period of time, and, as a result, the discount represented on the ticket was not real,” O’Bryan said. That misled customers, he found.
Greater penalties for breaches of the Australian Consumer Law
- Australia’s Phoenix Institute: $438 million. With improper conduct, after the students were misled into thinking the vocational courses they were enrolling in were free.
- Australian Institute of Professional Education: $153 million. For improper conduct, including misleading or deceptive conduct, when enrolling users in online diploma courses that were advertised as “free” but resulted in VET FEE‑HELP debts.
- Volkswagen: $125 million. By making a false representation about compliance with diesel emissions standards in Australia.
O’Bryan’s decision comes ahead of his separate, but very similar, cases against Woolworths and the ACCC, which he also oversees.
Coles said it was reviewing the ruling, which it could appeal, and insisted that its price had risen for genuine commercial reasons. “Our priority has been – and will continue to be – providing value to our customers,” a company spokesperson said.
“This case highlights the importance of transparency for retailers and customers alike. And the need for clear and practical guidance on minimum price initiation times to ensure that the retail industry can avoid unnecessary charges in the future,” he said. Woolworths declined to comment, citing the ongoing litigation.
Assistant Competition Minister Andrew Leigh said the ruling was “an important victory for consumers, and respect for the ACCC’s patient, strong enforcement of consumer laws”.
Great punishment is expected
Cass-Gottlieb said she was pleased with the outcome of the case, which the commission brought because Coles’ prices were making it difficult for customers to get real value at the supermarket.
“The ACCC will seek a significant penalty, which shows the importance of correct pricing for consumers and also because it is very important that the penalty not only can be written off as a cost of doing business, and that it is at a level that is a significant deterrent to such behavior,” he said.
While Cass-Gottlieb would not speculate on the size of the fine, due to the ongoing parallel case against Woolworths, others said Coles would receive a severe financial penalty.
In addition to penalties for breaching consumer law, which have reached hundreds of millions of dollars in other cases, Coles can pay compensation, including a class action lawsuit linked to ACCC proceedings.
Former ACCC chairman Allan Fels said Coles’ penalties could easily exceed $100 million, and financial penalties needed to be in the hundreds of millions to act as a deterrent.
“The impact on Coles will now be huge. I would expect the fines to be huge, in the hundreds of millions of dollars in penalties,” he said.
Rod Sims, who preceded Cass-Gottlieb at the ACCC, said the decision set a good example for supermarkets.
“This is a huge win for consumers because … it raises the bar for calling something a discount. You just can’t be honest about it,” Sims said.
Gregory Mackey, a special counsel at Gerard Malouf & Partners, which brought the related class action against Coles, said that, pending any appeal, the next step would be to calculate damages and compensation.
Mackey said the class action represented about 10 million customers, due to the “opt-out” system and the deadline passed last year. Attorneys plan to call experts ahead of the hearing to determine the payment request, but Mackey expects it will be at least another year before that process continues.
“Because of its loyalty program, Coles has a very good record of who bought these things and for how much. Normally, we don’t know how to calculate this, but for some of these sales they have records that they can show the court,” he said. Non-members may provide receipts or credit card statements as proof of purchase and right of cancellation.
“We’ve done research that found people wait until a product is on special, because they trust Coles, and then they buy in bulk. They might not buy at all,” he said.
The ACCC alleged Coles misled shoppers about “Down Down” prices on 245 products when it filed the original legal action.
But for the two-week session, the parties agreed to consider a small number of products sold between January 2021 and May 2023, including two-liter bottles of Coca-Cola, Colgate toothpaste, 900 gram tins of Karicare baby milk, Rexona deodorant, Lurpak butter and Arnott’s Shapes box.
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Elias Visontay is National Consumer Affairs Reporter at The Sydney Morning Herald and The Age.Connect through email address.
Jack Gramenz is a budding journalist at The Sydney Morning Herald.Connect through email address.
