The messy task of calculating the harm Coles caused shoppers

Say you’re in a supermarket doing your grocery run and you’re drawn to a bold red label advertising a sale on one of your favourite snacks.

Maybe you were going to buy it anyway and get a kick out of the small saving. Perhaps it wasn’t on your shopping list at all but given the discount, you take a punt anyway. You even think about buying in bulk, to store in your pantry for the next time you’re entertaining.

Either way, the snack ends up in your trolley. But then, you learn that instead of getting a deal, you’re paying what was a freshly hiked price.

Would you buy the item anyway, or would you spend the time studying others on the shelf to find a cheaper alternative? Or would you think ‘why do I even need this?’ and keep shopping?

And if you suddenly learnt that the hundreds of attention-grabbing labels the supermarket put up to spruik discounts were hiding genuine price rises, would you have a weaker association in your mind between this store and cheap groceries? Would the idea of driving the extra few minutes to do your regular shopping at that slightly out-of-the-way Aldi, which data has routinely found to have the cheapest food staples, start to make more sense?

There are infinite ways to respond to these questions, with even the same shopper likely to have a different answer depending on their mood or the day of the week you catch them.

This conundrum is a glimpse into the diabolical legal process that is set to play out as huge teams of lawyers attempt to quantify penalties and damages that Coles must pay after the Federal Court this week found the supermarket giant’s “Down Down” program misled millions of Australians for years with shelf labels promoting “illusory discounts”.

Pending any appeal, Coles is staring down the barrel of penalties that some are expecting to be in the hundreds of millions of dollars, after the Australian Competition and Consumer Commission (ACCC) successfully sued the retailer over its so-called discounts.

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

Justice Michael O’Bryan found that the price hikes weren’t artificial and were in response to supplier dynamics. But he ultimately determined that they were too shortlived – in most cases, four weeks or less – to be genuine and be compared to when spruiking a discount. Had the higher price existed for 12 weeks, it would have been a genuine price and Coles’ tickets not misleading, O’Bryan said.

Now, the case turns to the question of what, if any, financial harm the tickets caused customers. Such questions will come up in discussions between Coles and the ACCC to determine the penalty Coles should pay, partly based on a deterrent effect. ACCC chair Gina Cass-Gottlieb this week said misleading conduct not only harms consumers, but also law-abiding competitors.

The supermarket may also announce a scheme to refund customers, perhaps based on data about affected FlyBuys members, as well as potential online portal to upload a proof of purchase, one expert suggested.

Additionally, an attached class action case, representing an estimated 10 million Australians due to its opt-out nature, can seek damages if it is unsatisfied with what Coles commits to. This week’s decision did not rule on the outcome of the class action.

A 15-packet box of Arnotts Shapes was a key example examined during hearings, and helps explain the spectrum of philosophical debate that can occur to prove financial harm. The price of the box of biscuits was $5 for a lengthy period, rose to $6.50 for four weeks – albeit with a brief special sale during this window – before being lowered to $5.50 and advertised as a “Down Down” special.

Had the higher prices had been in place for eight extra weeks to meet O’Bryan’s threshold for a genuine price, consumers would not have been considered misled by Coles. But they would have had to pay an extra dollar for the box of Shapes for 56 days longer than they actually did.

“The scale of any overcharging remains unclear, as the ‘Down Down’ decision focused on pricing practices rather than determining what consumers should actually have paid,” Naomi Griffin, partner at law firm Clifford Chance, said.

Assessing harm can’t be oversimplified to just two options, said Dr Paul Harrison, Senior Lecturer and Chair of Consumer Behaviour at Deakin University’s Business School. “The problem with the legal process is that it assumes a binary relationship, either a consumer chose something or didn’t, but that’s just not how the human brain works,” he said.

Both Griffin and Harrison say there is no typical consumer in this case. Different shoppers have different motivations, and varying sensitivities to being nudged. Opportunity costs are different.

While a typical class action might have a representative plantiff, this matter would require multiple version of different representative customers affected.

Without the “Down Down” tickets, some shoppers may have not continued going back to Coles, or would have bought less, and so calculating their harm compared with other customers is “very messy”, Harrison said. “If they’re being told prices are lower, and no one is challenging it, consumers want to believe it’s true and trust it, because we don’t want to think too hard about our choices,” he said.

Ultimately, data held by Coles about its customers may be key to proving harm. Arguments about the true harm are likely to take years and prove incredibly contentious.

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