Coles found to have misled shoppers on discounted items | 7.30

Key Concepts

• Drip Pricing/False Discounting: The practice of artificially inflating prices before applying a "discount" to create a false perception of savings.
• Australian Consumer Law (ACL): The legal framework governing fair trading and consumer protection in Australia.
• Misleading or Deceptive Conduct: Legal terminology for business practices that create a false impression, leading consumers to make decisions based on inaccurate information.
• Commercially Justified Price Increases: Legitimate price hikes driven by external factors like supply chain costs, which are legal in isolation.

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1. The Core Issue: Misleading Discounting

The video examines a landmark Federal Court case against the supermarket giant Coles, initiated by the Australian Competition and Consumer Commission (ACCC). The central issue is "false discounting," where retailers hike the price of goods shortly before reducing them, marketing the reduction as a "discount" or "sale."

• The Mechanism: Retailers increase prices, wait a short period (e.g., two weeks), and then lower them. The "discounted" price is often equal to or higher than the original price before the hike.
• Case Study (Colgate Toothpaste): The court analyzed 14 specific product samples. One notable example was Colgate toothpaste, which rose from $5.50 to $7.00. A month later, it was "discounted" to $6.00 under a promotional campaign. While $6.00 is lower than $7.00, it remains higher than the original $5.50 price, misleading the consumer into believing they are receiving a genuine bargain.

2. Legal Framework and Judicial Findings

The court distinguished between the legality of changing prices and the legality of advertising those changes.

• Commercial Justification: The judge ruled that Coles’ initial price increases were "commercially justified" due to rising supply costs. Businesses have the right to set their own prices.
• The Deception: The illegality stems from the representation of the price. Under Australian Consumer Law, if a retailer claims a price is "discounted," it must be a genuine reduction from a price that was sustained for a reasonable period.
• The 12-Week Benchmark: The court highlighted that Coles previously maintained a policy of keeping prices at a higher level for at least 12 weeks before discounting them. By relaxing this rule in 2022, Coles engaged in conduct that the court deemed misleading.

3. The "Reasonable Consumer" Test

A critical component of the judicial process is the "reasonable consumer" test. The judge must determine:

• Would a reasonable person, walking down the aisle, be misled by the promotional signage?
• The court does not rely on the subjective experience of a single shopper but on the objective perception of an average consumer exposed to the marketing.

4. Implications and Future Consequences

• Regulatory Impact: The ACCC has welcomed the ruling, signaling a crackdown on deceptive pricing across the retail sector, from major supermarkets to local convenience stores.
• Potential Penalties: While the penalty for Coles has not yet been determined, experts suggest it could reach into the hundreds of millions of dollars.
• Industry-Wide Precedent: A similar case is currently pending against Woolworths. The outcome of these cases will likely force retailers to adopt strict, standardized guidelines regarding how long a price must be held before it can be legally advertised as "discounted."
• Consumer Trade-off: Experts warn that to comply with these new, stricter standards, retailers may keep prices at higher levels for longer periods to ensure they meet the legal threshold for future discounting, potentially increasing the cost of living for consumers.

Synthesis

The Coles case serves as a definitive warning to the retail industry: while businesses have the autonomy to adjust prices based on market conditions, they cannot manipulate the definition of a "discount" to deceive shoppers. The legal consensus is that if a price is not genuinely lower than the historical baseline, labeling it as a discount constitutes a breach of consumer law. Retailers are now expected to prioritize transparency in their promotional strategies to avoid significant financial and reputational penalties.