Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) shares are both starting the week in the red.
At the time of writing, the Coles share price is down 3.5% to $18.55 and the Woolworths share price is down a touch over 3% to $33.87.
Why are Coles and Woolworths shares being slammed?
Investors have been rushing to the exits on Monday after the Australian Competition and Consumer Commission (ACCC) took them both to court over alleged misleading Prices Dropped and Down Down claims.
According to an announcement from the ACCC, it has commenced separate proceedings in the Federal Court alleging that Coles and Woolworths breached the Australian Consumer Law by misleading consumers through discount pricing claims on hundreds of common supermarket products.
The competition regulator's allegations relate to products sold by each of Woolworths and Coles at regular long-term prices which remained the same, excluding short-term specials, for at least six months and in many cases for at least a year.
These products were then subject to price increases of at least 15% for brief periods, before being placed in Woolworths' Prices Dropped promotion and Coles' Down Down promotion, at prices lower than during the price spike but higher than, or the same as, the regular price before the price spike.
The ACCC's Chair, Gina Cass-Gottlieb, commented:
Following many years of marketing campaigns by Woolworths and Coles, Australian consumers have come to understand that the 'Prices Dropped' and 'Down Down' promotions relate to a sustained reduction in the regular prices of supermarket products. However, in the case of these products, we allege the new 'Prices Dropped' and 'Down Down' promotional prices were actually higher than, or the same as, the previous regular price.
We allege that each of Woolworths and Coles breached the Australian Consumer Law by making misleading claims about discounts, when the discounts were, in fact, illusory. We also allege that in many cases both Woolworths and Coles had already planned to later place the products on a 'Prices Dropped' or 'Down Down' promotion before the price spike, and implemented the temporary price spike for the purpose of establishing a higher 'was' price.
Coles and Woolworths respond
Coles and Woolworths have both responded to the news.
Woolworths advised that "it will carefully review the claims made by the ACCC and will continue to engage with the ACCC on the matter."
Whereas Coles stated that the "allegations relate to a period of significant cost inflation when Coles was receiving a large number of cost price increases from our suppliers and, in addition, Coles' own costs were rising, which led to an increase in the retail price of many products."
It advised that it "intends to defend the proceedings."
