Coles’ ‘Down Down’ discounts misled customers on industrial scale, court finds

Coles misled millions of Australians for years through its “Down Down” program by advertising fake discounts to customers, the Federal Court has determined in a landmark ruling that exposes the supermarket giant to significant potential penalties.

Federal Court Justice Michael O’Bryan upheld allegations from the Australian Competition and Consumer Commission (ACCC) that Coles’ discounts were only a reduction from increased prices that were available for too short a period for customers to believe they were genuine.

Coles’ share price dropped slightly in the hour after the decision, down more than 2 per cent, as the supermarket considers whether to appeal and the regulator looks towards “substantial” penalties.

The ACCC had argued that Coles artificially jacked up prices for hundreds of products for a brief period so they could say their new prices were a reduction on its previous one, when in fact the “Down Down” price was higher than just a few weeks before.

Coles defended the claims, arguing their discounts were genuine specials to help customers and sales after prices rose because of inflation.

O’Bryan found that Coles increased prices because suppliers wanted that to happen. “Coles increased the prices in a commercially justifiable manner,” O’Bryan said in a summary of his judgment.

But he said that they needed to be sold for 12 weeks at the higher price before customers would consider the discounts genuine. Most of Coles’ products were at the higher price for just four weeks. As a result, he found Coles had misled customers.

“The relevant products were not sold at the ‘was’ price stated on the ticket for a reasonable period, and, as a consequence, the discount represented on the tickets was not genuine,” O’Bryan said.

“In offering the sample products on those ‘Down Down’ tickets, Coles engaged in conduct in trade or commerce that was misleading, in contravention of … the Australian Consumer Law, and made a misleading representation with respect to the price of the sample products.”

O’Bryan’s judgment comes ahead of his ruling in separate, but very similar proceedings against Woolworths by the ACCC, which he is also presiding over. In that case, the ACCC alleged Woolworths’ “Prices Dropped” program, with the discounts examined during Sydney court hearings covering products also sold at their higher secondary price for shorter than 12 weeks.

At the height of public fury about inflation in late 2024, the consumer watchdog lobbed legal bombshells at Coles and Woolworths by accusing them of the fake discounts on products that were the same price or even higher than before.

Coles said it was reviewing the judgment. “The court found that all price increases resulted from supplier cost price increases and were, therefore, commercially justifiable,” Coles emphasised in a statement to the stockmarket.

ACCC chair Gina Cass-Gottlieb said the regulator would be pursuing a major penalty against Coles, which made $1.1 billion in profit last financial year.

“The ACCC will seek a substantial penalty, reflecting the importance of accurate pricing for consumers and also because it is very important that a penalty is not just able to be dismissed as a cost of doing business, and that it becomes at a level that is a significant deterrent for such conduct,” Cass-Gottlieb said.

“The ACCC brought this case in the public interest because we considered that Coles’ pricing practices within its ‘Down Down’ program made it harder for customers to identify genuine value for money while shopping for household essentials,” she said.

The consumer watchdog alleged Coles misled shoppers in relation to “Down Down” pricing across 245 products when filing the initial legal action.

But for the two-week hearing, the parties agreed to focus on a small number of products sold between January 2021 and May 2023, including 2 litre bottles of Coca-Cola, Colgate toothpaste, 900 gram tins of Karicare baby formula, Rexona deodorant, Lurpak butter and a box of Arnott’s Shapes.

The court heard the example of Nature’s Gift Wet Dog Food, which was priced at $4 between April 18, 2022, and February 7, 2023. It increased to $6 for seven days – its second price – before Coles introduced its third price, $4.50, advertising it as a discount from $6.

In another example tendered in documents and discussed in court, Shapes biscuits were sold for $5 a packet in 2021, then got as high as $6.50 and went back to $5.50 on a Coles promotion.

Of the 14 sample product labels, O’Bryan found 13 misled customers. Pricing for one item, a dog food product, was not considered to have misled shoppers because its shelf labels did not include a “was” price comparing it to the temporarily higher price preceding its special.

The court heard evidence that millions of Australians had seen advertising for the “Down Down” promotion, and many had purchased products sold under that promotion.

Coles is also facing a class action over the misleading promotions, which is yet to be fully heard by the court. That had been essentially paused while the ACCC’s case established the facts of Coles’ discounting practices, and will now go ahead.

In contrast to the hearings in the case, when a range of Coles’ current and former top managers were called as witnesses, the federal court on Thursday was devoid of any senior representatives from either side.

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