Dishonest discounts at the supermarket?
The ACCC sues Woolworths and Coles in Federal Court, with a chance of dramatic penalties.
Dr Mel Marquis - Monash Law School and Centre for Commercial Law and Regulatory Studies writes:
In the midst of its one-year mandate to conduct an inquiry into supermarkets, and having rattled its sabre many months ago (see Issues Paper), the ACCC on 23 September filed separate actions in the Federal Court against Woolworths and Coles, Australia’s giant supermarket chains.
The claims made in each action revolve around similar conduct. According to the ACCC, each supermarket applied the following three-stage, deceptive price strategy:
- Charge ‘normal’ prices, for a period of at least six months, on everyday consumer goods such as biscuits, cat food, tampons, toothpaste, throat lozenges and numerous others (more than 200 products in each case),
- Initiate a price ‘spike’ of at least 15% (or up to 40% or greater) for a limited period of time, typically a few weeks, and thereby establish a new (artificially high) top-end price,
And finally
- Create the mirage of a discount by offering a price (in stores and online) below the ‘price spike’ level while still charging a price exceeding the original ‘normal’ price
The ACCC alleges that, applying the conduct rules under the Australian Consumer Law (‘ACL’), an ordinary and reasonable consumer would thus be deceived into believing that the so-called ‘Now’ price for the product (i.e., the discounted price) was more favourable than the ‘Was’ price (i.e., the ‘price spike’ price). While a predatory purpose is not legally required to sustain a legal claim of misleading or deceptive conduct, the ACCC further alleges that the temporary ‘price spikes’ were often employed with the purpose of establishing a new ‘Was’ price that would contribute to the illusion of lower prices following such a spike. (Jeannie Paterson discusses the two cases in The Conversation).
In the cold light of day when not out shopping (as shoppers are apt to overestimate the value of discounts or be emotionally swayed by them,) many consumers can easily recognise the deviousness of the pricing tactic described above. If the allegations are substantiated, consumers would rightly feel outraged.
While dishonest discounting is hardly new, and while the ACCC and the Federal Courts have examined similar conduct in the past, enterprises now face unprecedented financial consequences if the practice amounts to a false or misleading representation.
As a result of changes in the law in November 2022, the maximum penalty for each contravention of the relevant prohibition (section 29(1)(i) ACL, which is pleaded in addition to the basic misleading or deceptive conduct provision, section 18 ACL) is the greater of the following: $50 million, or three times the benefit reasonably attributable to the misconduct, or (if the Court cannot ascertain the latter figure), 30% of the corporation’s adjusted Australian turnover during the breach period (i.e., the longer of the period of contravention or the 12 months ending when the breach ceased).
If the present cases were fully litigated and the ACCC were to prevail, the Federal Court (in addition to other relief) could easily calculate penalties in multiples of millions. Under the revised law, a new quest for deterrence in Australia, but perhaps also the age of shrugs for penalties exceeding $100 million, has begun.
The cases brought against Woolworths and Coles prompt a few brief observations. An initial comment is that the context matters. As one hears and perhaps experiences each day, Australian consumers are caught in a seemingly inextricable cost-of-living crisis. Broadly speaking, consumers are fed up with wealth transfers from their pockets to those of large enterprises. The core problem, of which consumers are well aware, is that competition and consumer choice in the grocery sector is lacking. A degree of price pressure comes from Aldi and other small rivals, but it is not enough.
Given that context, the allegations of misleading ‘Was-Now’ pricing, if substantiated, are serious. Indeed, such conduct does consumers a double disservice. First, compared to the ‘normal’ price (which we assume already included a mark-up over the cost of supply), the conduct raises the price for household goods on which consumers depend in varying degrees—causing consumers to either pay more, settle for less, or effectively be turned away from the products they seek. Second, and more insidiously, it does so while implying to consumers that the stores are in fact doing consumers a favour. This is gaslighting in the marketplace.
Beyond those harms, dishonest discounting can also create negative externalities by reducing consumer trust in the market, and consumer confidence. The problem is compounded because while consumers receive distorted signals from businesses, depriving them of their ability to make informed choices, the signals they send back to businesses may in turn have adverse effects. For example, if enterprises consider that consumers have diminished trust in price comparisons, the incentive to compete on price may likewise be diminished. None of this is good for the healthy functioning of markets in Australia, though the duopolists won’t be heard to complain.
For further details of the allegations against the supermarkets, see the ACCC’s statements filed with the Federal Court (https://www.accc.gov.au/system/files/accc-v-woolworths-concise-statement-stamped.pdf; https://www.accc.gov.au/system/files/accc-v-coles-concise-statement-stamped.pdf).