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Coles’ freshly baked problem

Supermarket operator Coles, is in hot water, over allegedly misleading customers that some of its bread is freshly baked on the day of sale.

Yesterday, the Australian Competition and Consumer Commission (ACCC) launched legal action against Coles – owned by Wesfarmers Limited (ASX:WES). The ACCC has alleged that Coles engaged in false, misleading and deceptive conduct over bread that was partially baked and frozen off site, transported to Coles stores and then ‘finished’ in-store. Coles promoted that bread as ‘Baked Today, sold Today’, and/or ‘Freshly Baked In-Store’.

The ACCC alleges that customers could be misled into believing that the bread was prepared from scratch on the day it was offered for sale. The ACCC also alleges that Coles’ Cuisine Royale products were partially baked overseas, and Coles’ lack of distinction between partially baked and made-from-scratch breads was misleading.

ACCC chairman Rod Sims said, “Misleading credence claims can undermine the level playing field and disadvantage other suppliers. In this case those suppliers are the smaller, often franchised bakeries that compete with Coles.” He added, “We believe consumers are likely to have been misled by Coles that the entire baking process, including preparation, occurred in-store, when in fact the bakery products were prepared and partially baked off site, frozen, transported and then ‘finished’ in store.”

In the past few years, Coles, and competitor Woolworths Limited (ASX:WOW) have heavily promoted their in-store bakeries, adding new ‘rustic’ or ‘artisan-like’ breads to compete against individual bakeries, such as Brumby’s Bakeries – owned by Retail Food Group (ASX:RFG), and privately owned Baker’s Delight.

Coles is believed to be outraged, with the ACCC’s case believed to be partly pinned on a trial range of products that were discontinued more than a year ago. The Cuisine Royale range represented less than 1% of Coles bakery products, and Coles bakery products include items that are prepared from scratch, using pre-made dough, and par-baked products.

Foolish takeaway

The ACCC is clearly targeting larger companies in recent times, with action taken last year against Harvey Norman Holdings (ASX:HVN) franchisees, energy companies and Hewlett Packard. The ACCC believes that this latest action is to protect competitors as well as consumers, and is unlikely to give up without a fight.

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Motley Fool writer/analyst Mike King owns shares in Woolworths.

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