On the first day of the blockbuster case between the consumer regulator and Coles, the supermarket giant’s long-running “Down Down” jingle was played to the court.
In an understated tone, counsel for the Australian Competition and Consumer Commission (ACCC) noted that the jingle “sticks in one’s ears for longer than is healthy”.
“Your honour will notice the large red hand, and that they [the prices] are not only down, but staying down,” said the ACCC’s lead barrister, Garry Rich SC.
The campaign is as effective as it is annoying – but is it misleading?
Coles was/is pricing
The ACCC’s case against Coles wrapped this week after a seven-day hearing.
The outcome of the case, which is testing allegations Coles deliberately misled shoppers, will have implications for pricing practices across the supermarket sector, with Woolworth also scheduled to face its own court challenge over similar allegations.
The two majors control about two-thirds of the supermarket sector, making them a key supplier to most Australian pantries and fridges.
The legal case was largely concerned with two questions.
First, there was a question over whether Coles made false representations about prices by using temporary, pre-planned price spikes to establish artificial “was” prices.
According to the regulator, the “was” prices allowed the supermarket to make subsequent prices in its “Down Down” campaign appear discounted when they were actually higher than the original long-term rate.
The strategy is known as “was/is” pricing.
In one example shown in court, Coles priced 1.2kg cans of Nature’s Gift wet dog food at $4 for 296 days between April 2022 and February 2023 and then elevated the product to $6 for just seven days before introducing its “Down Down” price of $4.50.
Coles’ counsel said this product was an “outlier”, while the ACCC said at least 62 of the products it reviewed were set at the “was” price for less than 28 days.
The second legal question was concerned with whether the overall impression of a “Down Down” discount was deceptive by creating an expectation of a genuine bargain that did not exist.
The case has offered a deep insight into shopping behaviour, with court evidence showing just how much Australians like a discount and why Coles is so keen to defend its flagship promotion.
For example, Coles sold Karicare baby formula for $18 for 794 days, then increased the price to $24 for 23 days before dropping it to $21, the ACCC submitted to the court.
Weekly sales revenue of the baby formula was $67,800 when advertised as being on sale, compared with $49,680 without the discount, the court was told.
Supermarket profit margins expanding
The ACCC launched the litigation in 2024 after a period of sharp grocery price increases.
The major supermarkets had suffered significant reputational damage at the time after they were the focus of a string of parliamentary inquiries. The regulator also found that Coles and Woolworths were among the most profitable supermarkets in the world and were thriving in an “oligopoly” with limited competition.
After a brief lull, grocery prices and other household costs have been rising strongly again.
Spending on food and non-alcoholic beverages contributed 3.4% to annual inflation in the 12 months to December, according to the Australian Bureau of Statistics, second only to housing.
The supermarkets are also expanding their profit margins again at a fast pace, according to half-year accounts lodged by Coles and Woolworths during the week.
Coles has lifted the margins on its supermarket business from 5.2% to 5.8%, which is significantly above pre-pandemic levels.
Expanding margins often indicate there is a growing disparity between the prices paid to suppliers and prices charged to customers; however the supermarkets argue they are running more efficient businesses.
Fair dinkum?
In court, while the ACCC spent considerable time scrutinising the supermarket’s “was/is” pricing, Justice Michael O’Bryan questioned the relevance of the time period the product was initially sold at, and the time it was at the “was” price.
On the last day of the hearings, O’Bryan said the case should be decided on the “genuineness” of the discounts, without “ties to notions of previous regular prices”.
On this question, the ACCC’s case relies on accusations that Coles used deliberate tactics to mislead shoppers with its “Down Down” tickets.
As the ACCC’s barrister told the court, many shoppers who “see a big red and white ticket and read that the price is ‘Down Down’ ... will have no idea that the price was actually lower four weeks ago”.
Legal counsel for the supermarket, however, argued that the promotional prices were genuine discounts offered to shoppers after an increase in wholesale costs charged by suppliers during a period of rising inflation.
The “was” price, in the supermarket’s legal argument, was a genuine reflection of a new price that took into account rising supplier costs.
During the hearing, John Sheahan KC, representing Coles, told the court shoppers would accept the promotion as a real drop in price.
“What they would be concerned with, when they’re walking down the aisle trying to work out what to buy today for their shopping, is whether the claimed discount … was fair dinkum,” he said.
Coles conceded that, by the time it raised the price of an item from the original to the “was” price, the supermarket had already planned and agreed with the supplier on what the third “Down Down” price would be.
But Sheahan argued it was more important to consider the general fluctuation of grocery prices, particularly during periods of high inflation, and said “in the end, all prices are temporary – nothing lasts for ever”.
Australian Associated Press contributed to this report
