Australian consumer watchdog sues grocery giants over 'illusory' discounts

Australia's consumer watchdog accused the country's two largest supermarket chains of misleading shoppers about discounts on hundreds of products in lawsuits filed on Monday, tightening pressure on the sector amid a cost-of-living crisis.

The legal action marks a major move against the supermarket giants, which have faced scrutiny from lawmakers and regulators for hitting consumers with high prices at a time when interest rates, housing costs, and energy bills have also risen sharply.

In separate lawsuits, the Australian Competition and Consumer Commission said Woolworths (WOW.AX), and Coles (COL.AX), held prices steady on certain products for up to two years, then hiked them only to advertise them as being on sale soon after.

The purported sale price was higher than the original price, the lawsuits said. The companies in some cases intentionally put up the prices for the purpose of establishing a higher "was" price, the suits said.

"The price discounts as promoted were misleading because the discount was illusory," the commission's chair, Gina Cass-Gottlieb, told reporters, adding it affected millions of units of products.

The commission said it was seeking unspecified penalties but noted potential fines for breaches of consumer law were A$50 million, 30% of turnover over the period of wrongdoing or three times the amount the company benefited from the wrongdoing.

The penalty "has to be high enough to be not a 'cost of doing business', to deter them from this conduct in the future and deter all retailers from this manner of conduct", Cass-Gottlieb said.

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Prime Minister Anthony Albanese, who has faced pressure to do more to combat rising grocery prices and who goes to an election within a year, said the actions alleged by the regulator would be unacceptable if true. Customers don't deserve to be treated as fools by the supermarkets," he told reporters.

Woolworths said in a statement it will review the commission's claims, while Coles said it would defend the case. Shares of the two companies, which together ring up two-thirds of Australian grocery sales, fell as much as 4% after the announcement.

Jefferies analyst Michael Simotas said it was hard to predict the outcome of the cases but the penalties could be significant. "We expect this matter to add to the pressure on major supermarkets' consumer perception and continue to be compounded by sales leakage to non-traditional channels," he said.

The current CEOs of both companies started after the period targeted by the lawsuit, September 2021 to May 2023.

In an April 2024 senate hearing, Woolworths' then-CEO Brad Banducci said shoppers would go elsewhere if his company engaged in price gouging.

Albanese on Monday announced draft legislation to impose a mandatory code of conduct for the grocery sector with millions of dollars in fines for breaches. His center-left Labor government has ruled out giving the competition regulator the power to break up the supermarket companies.