Australia sues grocery giants Woolworths and Coles over ‘illusory’ discounts By Reuters

Byron Kaye, Ayushmann Ojha

(Reuters) – In a lawsuit filed on Monday, an Australian consumer protection group accused the country’s two biggest supermarket chains of misleading shoppers about discounts on hundreds of products, increasing pressure on the supermarket industry as the cost of living continues to rise.

The lawsuit marks a major move against the supermarket giant, which has come under intense scrutiny from lawmakers and regulators for passing on high prices to consumers at a time when interest rates, housing costs and energy bills are also soaring.

In a separate case, the Australian Competition and Consumer Commission alleged that Woolworths and Coles kept prices of certain products frozen for up to two years, then quickly raised them and advertised them as on sale.

The sales prices were higher than the original prices, according to the lawsuit, and in some cases the companies intentionally inflated prices in order to establish a higher “previous” price.

“The advertised discounts were misleading because the discounts were fictitious,” commission chair Gina Cass Gottlieb told reporters, adding that millions of products were affected.

The commission said it was seeking specific penalties but noted fines for breaching consumer law could be as much as A$50 million, 30 per cent of a company’s turnover during the period of the fraud, or three times the profits a company made from the fraud.

“The fines should be high enough to deter this behavior in the future without becoming a ‘cost of doing business,’ and should discourage all retailers from engaging in this behavior,” Gottlieb said.

Shares in Woolworths and Coles, which account for two-thirds of Australia’s grocery sales, fell as much as 4% after the announcement.

Woolworths said in a statement it would consider the commission’s allegations, while Coles said it would defend the lawsuit.

Jefferies analyst Michael Simotas said the outcome of the lawsuit is difficult to predict, but the fines could be significant.

“We expect this issue to increase pressure on consumer perceptions of major supermarkets, exacerbated by sales exodus to non-traditional channels,” he said.

The current CEOs of both companies were due to take office after the period covered by the regulator’s lawsuit, which runs from September 2021 to May 2023. At a Senate hearing in April 2024, Woolworths’ then-CEO Brad Banducci said shoppers would go elsewhere if the company engaged in price gouging.

The centre-left Labour government, which is due to face a general election in less than a year, is under pressure from political opponents to introduce legislation that would give regulators the power to break up supermarket companies, but has refused to grant them the powers.

(1 dollar = 1.4684 Australian dollars)